COF 10-Q Quarter ended Sept. 30, 2018

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•	Capital One Bank (USA), National Association (“COBNA”), which offers credit and debit card products, other lending products and deposit products; and

•	Capital One, National Association (“CONA”), which offers a broad spectrum of banking products and financial services to consumers, small businesses and commercial clients.

•	Credit Card: Consists of our domestic consumer and small business card lending, and international card businesses in Canada and the United Kingdom (“U.K.”).

•	Consumer Banking: Consists of our branch-based lending and deposit gathering activities for consumers and small businesses, national deposit gathering and national auto lending.

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•	Commercial Banking: Consists of our lending, deposit gathering, capital markets and treasury management services to commercial real estate and commercial and industrial customers. Our commercial and industrial customers typically include companies with annual revenues between $20 million and $2 billion.

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(1)	Tangible book value per common share is a non-GAAP measure calculated based on tangible common equity divided by common shares outstanding. See “MD&A—Table —Reconciliation of Non-GAAP Measures and Calculation of Regulatory Capital Measures” for additional information on non-GAAP measures.

(2)	Purchase volume consists of purchase transactions, net of returns, for the period in our Credit Card business, and excludes cash advance and balance transfer transactions.

(3)	Total net revenue margin is calculated based on annualized total net revenue for the period divided by average interest-earning assets for the period.

(4)	Net interest margin is calculated based on annualized net interest income for the period divided by average interest-earning assets for the period.

(5)	Return on average tangible assets is a non-GAAP measure calculated based on annualized income from continuing operations, net of tax, for the period divided by average tangible assets for the period. See “MD&A—Table A —Reconciliation of Non-GAAP Measures and Calculation of Regulatory Capital Measures” for additional information on non-GAAP measures.

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(6)

Return on average common equity is calculated based on annualized (i) income from continuing operations, net of tax; (ii) less dividends and undistributed earnings allocated to participating securities; (iii) less preferred stock dividends, for the period, divided by average common equity. Our calculation of return on average common equity may not be comparable to similarly-titled measures reported by other companies.

(7)

Return on average tangible common equity is a non-GAAP measure calculated based on annualized (i) income from continuing operations, net of tax; (ii) less dividends and undistributed earnings allocated to participating securities; (iii) less preferred stock dividends, for the period, divided by average TCE. Our calculation of return on average TCE may not be comparable to similarly-titled measures reported by other companies. See “MD&A—Table A —Reconciliation of Non-GAAP Measures and Calculation of Regulatory Capital Measures” for additional information on non-GAAP measures.

(8)	Equity-to-assets ratio is calculated based on average stockholders’ equity for the period divided by average total assets for the period.

(9)	Efficiency ratio is calculated based on non-interest expense for the period divided by total net revenue for the period.

(10)	Operating efficiency ratio is calculated based on operating expense for the period divided by total net revenue for the period.

(11)	Net charge-off rate is calculated by dividing annualized net charge-offs by average loans held for investment for the period for each loan category.

(12)	Capital ratios are calculated based on the Basel III Standardized Approach framework, subject to applicable transition provision. See “MD&A—Capital Management” for additional information.

(13)	Tangible common equity ratio is a non-GAAP measure calculated based on TCE divided by tangible assets. See “MD&A—Table A —Reconciliation of Non-GAAP Measures and Calculation of Regulatory Capital Measures” for the calculation of this measure and reconciliation to the comparative U.S. GAAP measure.

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•	Earnings: Our net income increased by $ 395 million to $ 1.5 billion in the third quarter of 2018 primarily driven by:

◦	lower provision for credit losses driven by allowance releases in our domestic credit card and auto loan portfolios largely due to improvements in credit trends; and

◦	higher net interest income due to growth in our domestic credit card and auto loan portfolios and higher yields on interest earning assets as a result of higher interest rates, partially offset by higher interest expense attributable to higher interest rates.

◦	higher non-interest expense driven by a legal reserve build and increased marketing expense; and

◦	lower non-interest income due to an impairment charge as a result of repositioning our investment securities portfolio , partially offset by the net gains from the sales of exited businesses.

	Net income increased by $1.8 billion to $ 4.8 billion in the first nine months of 2018 primarily driven by:

◦	lower provision for credit losses driven by allowance releases in our domestic credit card and auto loan portfolios largely due to improvements in credit trends;

◦	higher net interest income due to growth in our domestic credit card and auto loan portfolios and higher yields on interest earning assets as a result of higher interest rates, partially offset by higher interest expense attributable to higher interest rates; and

◦	higher non-interest income largely due to the net gains from the sales of exited businesses including sale of substantially all of our consumer home loan portfolio and an increase in net interchange fees primarily due to higher purchase volume, partially offset by an impairment charge as a result of repositioning our investment securities portfolio .

•	Loans Held for Investment:

◦	Period-end loans held for investment decreased by $15.7 billion to $238.8 billion as of September 30, 2018 from December 31, 2017 primarily driven by the sale of substantially all of our consumer home loan portfolio and expected seasonal paydowns in our domestic credit card loan portfolio , partially offset by growth in our commercial, auto and domestic credit card loan portfolios .

◦

Average loans held for investment decreased by $9.1 billion to $ 236.8 billion in the third quarter of 2018 compared to the third quarter of 2017 primarily driven by the impact of the sale of substantially all of our consumer home loan portfolio , partially offset by growth in our domestic credit card loan portfolio, mainly due to loans obtained in the Cabela’s acquisition, and growth in our auto loan portfolio. These same factors drove average loans held for investment to decrease by $ 836 million to $ 242.4 billion in the first nine months of 2018 compared to the first nine months of 2017 as the impact of the sale of substantially all of our consumer home loan portfolio was largely offset by the growth in our domestic credit card and auto loan portfolios.

•

Net Charge-Off and Delinquency Metrics: Our net charge-off rate decreased by 20 basis points to 2.41% in the third quarter of 2018 compared to the third quarter of 2017 , and decreased by 12 basis points to 2.48% in the first nine months of 2018 compared to the first nine months of 2017 , primarily driven by elevated charge-offs in the third quarter and first nine months of 2017 in our taxi medallion and oil and gas lending portfolios within our Commercial Banking business.

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•	Allowance for Loan and Lease Losses: Our allowance for loan and lease losses decreased by $283 million to $7.2 billion as of September 30, 2018 from December 31, 2017 primarily driven by allowance releases in our domestic credit card and auto loan portfolios largely due to improvements in credit trends.

•	any change in current dividend or repurchase strategies;

•	the effect of any acquisitions, divestitures or similar transactions that have not been previously disclosed; or

•	any changes in laws, regulations or regulatory interpretations, in each case after the date as of which such statements are made.

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(1)	Past due fees included in interest income totaled approximately $433 million and $1.2 billion in the third quarter and first nine months of 2018 , respectively, and $413 million and $1.2 billion in the third quarter and first nine months of 2017 , respectively.

(2)

Some of our commercial loans generate tax-exempt income. Accordingly, we present our Commercial Banking interest income and yields on a taxable-equivalent basis, calculated using the federal statutory rate (21% and 35% for all periods presented in 2018 and 2017, respectively) and state taxes where applicable, with offsetting reductions to the Other category. Taxable-equivalent adjustments included in the interest income and yield computations for our Commercial banking loans totaled approximately $20 million and $61 million in the third quarter and first nine months of 2018 , respectively, and $32 million and $96 million in the third quarter and first nine months of 2017 , respectively, with corresponding reductions to Other category.

(3)

Interest income and interest expense and the calculation of average yields on interest-earning assets and average rates on interest-bearing liabilities include the impact of hedge accounting. In the first quarter of 2018, we adopted Accounting Standards Update (“ASU”) No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. As a result, interest income and interest expense amounts shown above for the three months ended September 30, 2018 include $2 million and $10 million , respectively, and for the nine months ended September 30, 2018 include $1 million and $36 million , respectively, related to hedge ineffectiveness that would previously have been included in other non-interest income.

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•	changes in the volume of our interest-earning assets and interest-bearing liabilities; or

•	changes in the interest rates related to these assets and liabilities.

(1)

We calculate the change in interest income and interest expense separately for each item. The portion of interest income or interest expense attributable to both volume and rate is allocated proportionately when the calculation results in a positive value. When the portion of interest income or interest expense attributable to both volume and rate results in a negative value, the total amount is allocated to volume or rate, depending on which amount is positive.

(2)	Some of our commercial loans generate tax-exempt income. Accordingly, we present our Commercial Banking interest income and yields on a taxable-equivalent basis, calculated using the federal statutory rate (21% and 35% for all periods presented in 2018 and 2017, respectively) and state taxes where applicable, with offsetting reductions to the Other category.

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•	the net gains from the sales of exited businesses including sale of substantially all of our consumer home loan portfolio ; and

•	an increase in net interchange fees primarily due to higher purchase volume .

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•	treasury stock purchases and dividend payments to our stockholders; and

•	unrealized losses on our available for sale securities and cash flow hedges included in accumulated other comprehensive loss primarily driven by higher interest rates.

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(1)	Includes primarily supranational bonds and foreign government bonds.

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(1)	Includes investment securities that were not rated by S&P as of September 30, 2018 and investment securities not rated by S&P or Moody’s as of December 31, 2017. There were no new additions nor downgrades to other ABS in the first nine months of 2018.

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(1)	Includes brokered deposits of $21.1 billion and $25.1 billion as of September 30, 2018 and December 31, 2017 , respectively.

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(1)	Total net revenue consists of net interest income and non-interest income.

(2)	Net income for our business segments and the Other category is based on income from continuing operations, net of tax.

(3)	Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate (21% and 35% for all periods presented in 2018 and 2017, respectively) and state taxes where applicable, with offsetting reductions to the Other category.

(4)

In the first quarter of 2018, we made a change in how revenue is measured in our Commercial Banking business to include the tax benefits of losses on certain tax-advantaged investments. These tax benefits are included in revenue on a taxable-equivalent basis within our Commercial Banking business, with an offsetting reduction to the Other category. In addition, all revenue presented on a taxable-equivalent basis in our Commercial Banking business was impacted by the reduction of the federal tax rate set forth in the Tax Act. The net impact of the measurement change and the reduction of the federal tax rate was a decrease of $30 million and $86 million in revenue in our Commercial Banking business in the third quarter and first nine months of 2018, respectively, with an offsetting impact to the Other category.

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(1)

We recognize billed finance charges and fee income on open-ended loans in accordance with the contractual provisions of the credit arrangements and estimate the uncollectible amount on a quarterly basis. The estimated uncollectible amount of billed finance charges and fees is reflected as a reduction in revenue and is not included in our net charge-offs. Total net revenue was reduced by $305 million and $949 million in the third quarter and first nine months of 2018 , respectively, and by $356 million and $990 million in the third quarter and first nine months of 2017 , respectively, for the estimated uncollectible amount of billed finance charges and fees and related losses. The finance charge and fee reserve totaled $425 million and $491 million as of September 30, 2018 and December 31, 2017 , respectively.

(2)	Period-end loans held for investment and average loans held for investment include billed finance charges and fees, net of the estimated uncollectible amount.

(3)	Average yield on loans held for investment is calculated by dividing annualized interest income for the period by average loans held for investment during the period. Interest income excludes various allocations including funds transfer pricing that assigns certain balance sheet assets, deposits and other liabilities and their related revenue and expenses attributable to each business segment.

(4)	Total net revenue margin is calculated by dividing annualized total net revenue for the period by average loans held for investment during the period. Interest income also includes interest income on loans held for sale.

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(5)	Purchase volume consists of purchase transactions, net of returns, for the period, and excludes cash advance and balance transfer transactions.

(6)	Within our credit card loan portfolio, only certain loans in our international card businesses are classified as nonperforming. See “MD&A— Nonperforming Loans and Other Nonperforming Assets ” for additional information.

•	Net Interest Income: Net interest income increased by $156 million to $3.6 billion in the third quarter of 2018 and increased by $470 million to $10.6 billion in the first nine months of 2018 primarily driven by loan growth in our Domestic Card business, including loans obtained in the Cabela’s acquisition.

•	Non-Interest Income: Non-interest income increased by $28 million to $893 million in the third quarter of 2018 and increased by $156 million to $2.6 billion in the first nine months of 2018 primarily driven by an increase in net interchange fees primarily due to higher purchase volume .

•	Provision for Credit Losses: The provision for credit losses decreased by $435 million to $1.0 billion in the third quarter of 2018 and decreased by $922 million to $3.7 billion in the first nine months of 2018 primarily driven by allowance releases in our domestic credit card loan portfolio due to improvements in credit trends.

•	Non-Interest Expense: Non-interest expense increased by $142 million to $2.1 billion in the third quarter of 2018 and increased by $238 million to $6.0 billion in the first nine months of 2018 primarily driven by higher marketing and operating expenses associated with loan growth and continued investments in technology and infrastructure.

•	Loans Held for Investment: Period-end loans held for investment decreased by $4.1 billion to $110.7 billion as of September 30, 2018 from December 31, 2017 as expected seasonal paydowns more than offset growth in our domestic credit card loan portfolio.

•	Net Charge-Off and Delinquency Metrics: The net charge-off rate decreased by 36 basis points to 4.15% in the third quarter of 2018 compared to the third quarter of 2017 and decreased by 23 basis points to 4.62% in the first nine months of 2018 compared to the first nine months of 2017 primarily driven by favorability realized from portfolio seasoning.

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(1)	We recognize billed finance charges and fee income on open-ended loans in accordance with the contractual provisions of the credit arrangements and estimate the uncollectible amount on a quarterly basis. The estimated uncollectible amount of billed finance charges and fees is reflected as a reduction in revenue and is not included in our net charge-offs.

(2)	Period-end loans held for investment and average loans held for investment include billed finance charges and fees, net of the estimated uncollectible amount.

(3)	Average yield on loans held for investment is calculated by dividing annualized interest income for the period by average loans held for investment during the period. Interest income excludes various allocations including funds transfer pricing that assigns certain balance sheet assets, deposits and other liabilities and their related revenue and expenses attributable to each business segment.

(4)	Total net revenue margin is calculated by dividing annualized total net revenue for the period by average loans held for investment during the period.

(5)	Purchase volume consists of purchase transactions, net of returns, for the period, and excludes cash advance and balance transfer transactions.

•	lower provision for credit losses;

•	higher net interest income primarily driven by loan growth, including loans obtained in the Cabela’s acquisition; and

•	higher non-interest income driven by an increase in net interchange fees primarily due to higher purchase volume .

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(1)	In the first nine months of 2018, we sold substantially all of our consumer home loan portfolio and the related servicing. The impact of the sales is reflected in the Other category for the three and nine months ended September 30, 2018.

(2)	Average yield on loans held for investment is calculated by dividing annualized interest income for the period by average loans held for investment during the period. Interest income excludes various allocations including funds transfer pricing that assigns certain balance sheet assets, deposits and other liabilities and their related revenue and expenses attributable to each business segment.

(3)	Nonperforming assets consist of nonperforming loans, real estate owned (“REO”) and other foreclosed assets. The total nonperforming asset rate is calculated based on total nonperforming assets divided by the combined period-end total loans held for investment, REO and other foreclosed assets.

**	Not meaningful.

•

Net Interest Income: Net interest income remained substantially flat at $1.6 billion in the third quarter of 2018 and increased by $116 million to $4.9 billion in the first nine months of 2018 primarily driven by growth in our auto loan portfolio and higher deposit volumes and margins in our retail banking business, partially offset by the sale of substantially all of our consumer home loan portfolio .

◦	changes in product mix as a result of the sale of substantially all of our consumer home loan portfolio ; and

◦	higher yields as a result of higher interest rates.

•	Non-Interest Income: Non-interest income decreased by $37 million to $155 million in the third quarter of 2018 and decreased by $66 million to $504 million in the first nine months of 2018 primarily driven by:

◦	lower mortgage banking revenue as a result of our decision to cease new originations of home loan lending products in the fourth quarter of 2017; and

◦	a mortgage representation and warranty reserve release in the first quarter of 2017.

•	Provision for Credit Losses: The provision for credit losses decreased by $109 million to $184 million in the third quarter of 2018 and decreased by $305 million to $535 million in the first nine months of 2018 primarily driven by allowance releases in our auto loan portfolio largely due to improvements in credit trends.

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•	Non-Interest Expense: Non-interest expense decreased by $72 million to $979 million in the third quarter of 2018 and decreased by $210 million to $2.9 billion in the first nine months of 2018 primarily driven by:

◦	lower operating expenses due to our decision to cease new originations of home loan lending products in the fourth quarter of 2017 and the sale of substantially all of our consumer home loan portfolio in the third quarter and first nine months of 2018; and

◦	operating efficiencies in our retail banking business.

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Loans Held for Investment: Period-end loans held for investment decreased by $15.7 billion to $59.3 billion as of September 30, 2018 from December 31, 2017 , and average loans held for investment decreased by $16.1 billion to $59.2 billion in the third quarter of 2018 compared to the third quarter of 2017 and decreased by $7.6 billion to $66.8 billion in the first nine months of 2018 compared to the first nine months of 2017 . These decreases were primarily driven by the sale of substantially all of our consumer home loan portfolio , partially offset by growth in our auto loan portfolio.

•	Deposits: Period-end deposits increased by $10.8 billion to $196.6 billion as of September 30, 2018 from December 31, 2017 as a result of strong growth in our deposit products that are offered to both existing and new customers.

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Net Charge-Off and Delinquency Metrics: The net charge-off rate increased by 30 basis points to 1.77% in the third quarter of 2018 compared to the third quarter of 2017 , and increased by 6 basis points to 1.36% in the first nine months of 2018 compared to the first nine months of 2017 . These increases were primarily driven by lower loan balances due to the sale of substantially all of our consumer home loan portfolio , partially offset by improvements in credit trends in our auto loan portfolio.

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(1)	Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate (21% and 35% for all periods presented in 2018 and 2017, respectively) and state taxes where applicable, with offsetting reductions to the Other category.

(2)

In the first quarter of 2018, we made a change in how revenue is measured in our Commercial Banking business to include the tax benefits of losses on certain tax-advantaged investments. These tax benefits are included in revenue on a taxable-equivalent basis within our Commercial Banking business, with an offsetting reduction to the Other category. In addition, all revenue presented on a taxable-equivalent basis in our Commercial Banking business was impacted by the reduction of the federal tax rate set forth in the Tax Act. The net impact of the measurement change and the reduction of the federal tax rate

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(3)

The provision for losses on unfunded lending commitments is included in the provision for credit losses in our consolidated statements of income and the related reserve for unfunded lending commitments is included in other liabilities on our consolidated balance sheets. Our reserve for unfunded lending commitments totaled $106 million and $117 million as of September 30, 2018 and December 31, 2017 , respectively.

(4)	Average yield on loans held for investment is calculated by dividing annualized interest income for the period by average loans held for investment during the period. Interest income excludes various allocations including funds transfer pricing that assigns certain balance sheet assets, deposits and other liabilities and their related revenue and expenses attributable to each business segment.

(5)	Nonperforming assets consist of nonperforming loans, REO and other foreclosed assets. The total nonperforming asset rate is calculated based on total nonperforming assets divided by the combined period-end total loans held for investment, REO and other foreclosed assets.

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Net Interest Income: Net interest income decreased by $21 million to $539 million in the third quarter of 2018 and decreased by $71 million to $1.6 billion in the first nine months of 2018 primarily driven by the impact of the reduction of the federal tax rate set forth in the Tax Act on revenue presented on a taxable-equivalent basis, partially offset by the change to include the tax benefit of losses on certain tax-advantaged investments.

•	Non-Interest Income: Non-interest income increased by $10 million to $189 million in the third quarter of 2018 and increased by $65 million to $585 million in the first nine months of 2018 primarily driven by higher revenue in our capital markets and agency businesses.

•	Provision for Credit Losses: The provision for credit losses decreased by $9 million to $54 million in the third quarter of 2018 and decreased by $127 million to $74 million in the first nine months of 2018 primarily driven by elevated charge-offs in the third quarter and first nine months of 2017 in our taxi medallion and oil and gas lending portfolios .

•	Non-Interest Expense: Non-interest expense increased by $14 million to $408 million in the third quarter of 2018 and increased by $54 million to $1.2 billion in the first nine months of 2018 driven by higher operating expenses associated with continued investments in technology and other business initiatives.

•	Loans Held for Investment: Period-end loans held for investment increased by $4.2 billion to $68.7 billion as of September 30, 2018 from December 31, 2017 primarily driven by growth across our commercial loan portfolios.

◦	paydowns in our commercial and industrial loan portfolios; and

◦	charge-offs in, and the subsequent sale of, the substantial majority of our taxi medallion lending portfolio.

•	Deposits: Period-end deposits decreased by $3.5 billion to $30.5 billion as of September 30, 2018 from December 31, 2017 primarily due to the impact of a rising interest rate environment.

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Net Charge-Off and Nonperforming Metrics: The net charge-off rate decreased by 80 basis points to 0.16% in the third quarter of 2018 compared to the third quarter of 2017 and decreased by 56 basis points to 0.08% in the first nine months of 2018 compared to the first nine months of 2017 primarily driven by elevated charge-offs in the third quarter and first nine months of 2017 in our taxi medallion and oil and gas lending portfolios .

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•	foreign exchange-rate fluctuations on foreign currency-denominated balances;

•	unallocated corporate revenue and expenses that do not directly support the operations of the business segments or for which the business segments are not considered financially accountable in evaluating their performance, such as certain restructuring charges;

•	offsets related to certain line-item reclassifications; and

•	residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments .

(1)	Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate (21% and 35% for all periods presented in 2018 and 2017, respectively) and state taxes where applicable, with offsetting reductions to the Other category.

(2)

In the first quarter of 2018, we made a change in how revenue is measured in our Commercial Banking business to include the tax benefits of losses on certain tax-advantaged investments. These tax benefits are included in revenue on a taxable-equivalent basis within our Commercial Banking business, with an offsetting reduction to the Other category. In addition, all revenue presented on a taxable-equivalent basis in our Commercial Banking business was impacted by the reduction of the federal tax rate set forth in the Tax Act. The net impact of the measurement change and the reduction of the federal tax rate was a decrease of $30 million and $86 million in revenue in our Commercial Banking business in the third quarter and first nine months of 2018, respectively, with an offsetting impact to the Other category.

**	Not meaningful.

•	an impairment charge as a result of repositioning our investment securities portfolio ; and

•	a legal reserve build.

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•	Loan loss reserves

•	Asset impairment

•	Fair value of financial instruments

•	Customer rewards reserve

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(1)

Capital ratios are calculated based on the Basel III Standardized Approach framework, subject to applicable transition provisions, such as the inclusion of the unrealized gains and losses on securities available for sale included in accumulated other comprehensive income (“AOCI”) and adjustments related to intangible assets other than goodwill. The inclusion of AOCI and the adjustments related to intangible assets are phased-in at 80% for 2017 and 100% for 2018. Capital requirements that are not applicable are denoted by “N/A.”

(2)	Ratios as of September 30, 2018 are preliminary. As we continue to validate our data, the calculations are subject to change until we file our September 30, 2018 Form FR Y-9C—Consolidated Financial Statements for Holding Companies and Call Reports.

(3)	Common equity Tier 1 capital ratio is a regulatory capital measure calculated based on common equity Tier 1 capital divided by risk-weighted assets.

(4)	Tier 1 capital ratio is a regulatory capital measure calculated based on Tier 1 capital divided by risk-weighted assets.

(5)	Total capital ratio is a regulatory capital measure calculated based on total capital divided by risk-weighted assets.

(6)	Tier 1 leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by adjusted average assets.

(7)	Supplementary leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by total leverage exposure.

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•	Establish Governance Processes, Accountabilities and Risk Appetites

•	Identify and Assess Risks and Ownership

•	Develop and Operate Controls, Monitoring and Mitigation Plans

•	Test and Detect Control Gaps and Perform Corrective Action

•	Escalate Key Risks and Gaps to Executive Management and, when Appropriate, the Board of Directors

•	Calculate and Allocate Capital in Alignment with Risk Management and Measurement Processes (including Stress Testing)

•	Support with the Right Culture, Talent and Skills

•	Enabled by the Right Data, Infrastructure and Programs

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(1)

Percentages represent period-end loans held for investment in each credit score category. Domestic card credit scores generally represent FICO scores. These scores are obtained from one of the major credit bureaus at origination and are refreshed monthly thereafter. We approximate non-FICO credit scores to comparable FICO scores for consistency purposes. Balances for which no credit score is available or the credit score is invalid are included in the 660 or below category.

(2)	Percentages represent period-end loans held for investment in each credit score category. Auto credit scores generally represent average FICO scores obtained from three credit bureaus at the time of application and are not refreshed thereafter. Balances for which no credit score is available or the credit score is invalid are included in the 620 or below category.

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(1)	Delinquency rates are calculated by dividing delinquency amounts by period-end loans held for investment for each specified loan category, including purchased credit-impaired (“PCI”) loans as applicable.

(1)	Delinquency rates are calculated by dividing delinquency amounts by total period-end loans held for investment, including PCI loans as applicable.

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(1)	Delinquency rates are calculated by dividing delinquency amounts by period-end loans held for investment for each specified loan category, including PCI loans as applicable.

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(1)

We recognized interest income for loans classified as nonperforming of $35 million and $38 million in the first nine months of 2018 and 2017 , respectively. Interest income foregone related to nonperforming loans was $44 million and $43 million in the first nine months of 2018 and 2017 , respectively. Foregone interest income represents the amount of interest income that would have been recorded during the period for nonperforming loans as of the end of the period had the loans performed according to their contractual terms.

(2)	Nonperforming loan rates are calculated based on nonperforming loans for each category divided by period-end total loans held for investment for each respective category.

(3)	Excluding the impact of domestic credit card loans, nonperforming loans as a percentage of total loans held for investment was 0.52% and 0.60% as of September 30, 2018 and December 31, 2017 , respectively.

(4)	The denominators used in calculating nonperforming asset rates consist of total loans held for investment and total other nonperforming assets.

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(1)	Net charge-off (recovery) rate is calculated by dividing annualized net charge-offs (recoveries) by average loans held for investment for the period for each loan category .

(2)

In August 2018, we accelerated charge-off recognition for certain domestic credit card accounts where the cardholder is deceased. This acceleration led to a one-time increase in net charge-offs of approximately $32 million, increasing the net charge-off rate for total credit card and domestic credit card by approximately 12 basis points and 13 basis points, respectively, for the third quarter of 2018, and 4 basis points for both total credit card and domestic credit card for the first nine months of 2018.

**	Not meaningful.

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(1)	Represents foreign currency translation adjustments and the net impact of loan transfers and sales where applicable.

(2)	In the second quarter of 2018, we sold the substantial majority of our consumer home loan portfolio and the related servicing. We also transferred the remaining portfolio to loans held for sale as of June 30, 2018. The impact of these actions included a benefit for credit losses of $46 million which is reflected in the Other category.

(3)	Includes the legacy loan portfolio of our discontinued GreenPoint mortgage operations.

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(1)	Allowance coverage ratios by loan category are calculated based on the allowance for loan and lease losses for each specified portfolio segment divided by period-end loans held for investment within the specified loan category.

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(1)	Includes negotiable order of withdrawal accounts.

(2)	Includes money market deposit accounts.

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(1)	Includes $2.5 billion of securitized debt assumed in the Cabela’s acquisition for the third quarter and first nine months of 2017 .

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•	general economic and business conditions in the U.S., the U.K., Canada or our local markets, including conditions affecting employment levels, interest rates, tariffs, collateral values, consumer income, credit worthiness and confidence, spending and savings that may affect consumer bankruptcies, defaults, charge-offs and deposit activity;

•	an increase or decrease in credit losses, including increases due to a worsening of general economic conditions in the credit environment, and the impact of inaccurate estimates or inadequate reserves;

•	compliance with financial, legal, regulatory, tax or accounting changes or actions, including the impacts of the Tax Act, the Dodd-Frank Act, and other regulations governing bank capital and liquidity standards;

•	developments, changes or actions relating to any litigation, governmental investigation or regulatory enforcement action or matter involving us;

•	the inability to sustain revenue and earnings growth;

•	increases or decreases in interest rates;

•	our ability to access the capital markets at attractive rates and terms to capitalize and fund our operations and future growth;

•	increases or decreases in our aggregate loan balances or the number of customers and the growth rate and composition thereof, including increases or decreases resulting from factors such as shifting product mix, amount of actual marketing expenses we incur and attrition of loan balances;

•	the amount and rate of deposit growth;

•	our ability to execute on our strategic and operational plans;

•	our restructuring activities or other charges;

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•	our response to competitive pressures;

•	changes in retail distribution strategies and channels, including the emergence of new technologies and product delivery systems;

•	the success of our marketing efforts in attracting and retaining customers;

•	changes in the reputation of, or expectations regarding, the financial services industry or us with respect to practices, products or financial condition;

•	any significant disruption in our operations or in the technology platforms on which we rely, including cybersecurity, business continuity and related operational risks, as well as other security failures or breaches of our systems or those of our customers, partners, service providers or other third parties;

•	our ability to maintain a compliance and technology infrastructure suitable for the nature of our business;

•	our ability to develop and adapt to rapid changes in digital technology to address the needs of our customers and comply with applicable regulatory standards, including our increasing reliance on third party infrastructure and compliance with data protection and privacy standards;

•	the effectiveness of our risk management strategies;

•	our ability to control costs, including the amount of, and rate of growth in, our expenses as our business develops or changes or as it expands into new market areas;

•	the extensive use, reliability and accuracy of the models and data we rely on in our business;

•	our ability to recruit and retain talented and experienced personnel;

•	the impact from, and our ability to respond to, natural disasters and other catastrophic events;

•	changes in the labor and employment markets;

•	fraud or misconduct by our customers, employees, business partners or third parties;

•	merchants’ increasing focus on the fees charged by credit card networks; and

•	other risk factors identified from time to time in our public disclosures, including in the reports that we file with the SEC.

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(1)	Includes impact of related deferred taxes.

(2)	TCE ratio is a non-GAAP measure calculated by dividing the period-end TCE by period-end tangible assets.

(3)	Ratios as of September 30, 2018 are preliminary. As we continue to validate our data, the calculations are subject to change until we file our September 30, 2018 Form FR Y-9C—Consolidated Financial Statements for Holding Companies and Call Reports.

(4)	Common equity Tier 1 capital ratio is a regulatory capital measure calculated based on common equity Tier 1 capital divided by risk-weighted assets.

(5)	Tier 1 capital ratio is a regulatory capital measure calculated based on Tier 1 capital divided by risk-weighted assets.

(6)	Total capital ratio is a regulatory capital measure calculated based on total capital divided by risk-weighted assets.

(7)	Adjusted average assets, for the purpose of calculating our Tier 1 leverage ratio, represent total average assets adjusted for amounts that deducted from Tier 1 capital, predominately goodwill and intangible assets. Tier 1 leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by adjusted average assets.

(8)	Supplementary leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by total leverage exposure. See “MD&A—Capital Management” for additional information.

(9)	Includes credit and market risk weighted assets.

(10)	Amounts presented are net of tax.

(11)	Amounts based on transition provisions for regulatory capital deductions and adjustments of 80% for 2017 and 100% for 2018.

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The Company

Capital One Financial Corporation, a Delaware Corporation established in 1994 and headquartered in McLean, Virginia, is a diversified financial services holding company with banking and non-banking subsidiaries. Capital One Financial Corporation and its subsidiaries (the “Company”) offer a broad array of financial products and services to consumers, small businesses and commercial clients through branches, the internet and other distribution channels. As of September 30, 2018 , our principal subsidiaries included:

•	Capital One Bank (USA), National Association (“COBNA”), which offers credit and debit card products, other lending products and deposit products; and

•	Capital One, National Association (“CONA”), which offers a broad spectrum of banking products and financial services to consumers, small businesses and commercial clients.

The Company is hereafter collectively referred to as “we,” “us” or “our.” COBNA and CONA are collectively referred to as the “Banks.”

We also offer products outside of the United States of America (“U.S.”) principally through Capital One (Europe) plc (“COEP”), an indirect subsidiary of COBNA organized and located in the United Kingdom (“U.K.”), and through a branch of COBNA in Canada. COEP has authority, among other things, to provide credit card loans. Our branch of COBNA in Canada also has the authority to provide credit card loans.

Our principal operations are organized for management reporting purposes into three major business segments, which are defined primarily based on the products and services provided or the type of customer served: Credit Card, Consumer Banking and Commercial Banking. We provide details on our business segments, the integration of recent acquisitions, if any, into our business segments and the allocation methodologies and accounting policies used to derive our business segment results in “ Note 13—Business Segments and Revenue from Contracts with Customers .”

Basis of Presentation and Use of Estimates

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”). The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and in the related disclosures. These estimates are based on information available as of the date of the consolidated financial statements. While management makes its best judgments, actual amounts or results could differ from these estimates. In the opinion of management, all normal, recurring adjustments have been included for a fair statement of this interim financial information. Certain prior period amounts have been reclassified to conform to the current period presentation.

These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements, and related notes thereto, included in Capital One Financial Corporation’s 2017 Annual Report on Form 10-K (“2017 Form 10-K”).

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Newly Adopted Accounting Standards

Accounting Implications of the Tax Cuts and Jobs Act

In March 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 . This ASU codifies into existing U.S. GAAP the SEC Staff views expressed in Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act . This guidance addresses situations where an entity’s accounting for the income tax effects of the Tax Act is incomplete upon issuance of the entity’s financial statements for the reporting period in which the Tax Act was enacted. In accordance with this guidance, we included certain provisional amounts for these effects in our consolidated financial statements as of and for the year ended December 31, 2017. See “MD&A—Accounting Changes and Developments” in our 2017 Form 10-K for more information. Excluding our accounting for the repatriation tax, we have completed our accounting for the income tax effects of the Tax Act. We continue to assess regulatory guidance and other information related to the repatriation tax, and expect to finalize our assessment and record any required adjustments to the related provisional amounts by December 2018. We did not have any significant measurement period adjustments in the three or nine months ended September 30, 2018.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. U.S. GAAP requires the effects of changes in tax rates and laws on deferred tax balances to be recorded in income tax from continuing operations in the period of enactment. This requirement applies even in situations in which the related income tax effects of items in accumulated other comprehensive income (“AOCI”) were originally recognized in other comprehensive income (rather than in income from continuing operations), which results in certain tax effects being stranded in AOCI. This ASU allows a one-time reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Act. Additionally, this ASU requires entities to disclose their accounting policy for releasing stranded tax effects from AOCI, for which ours is to release the effects using a portfolio approach. This ASU provides entities the option to apply the guidance retrospectively or in the period of adoption. We early adopted this ASU in the first quarter of 2018, resulting in a decrease to AOCI and an increase to retained earnings of $ 173 million . Our reclassification included the effects of the reduction in the federal corporate income tax rate enacted by the Tax Act and the resulting impacts on the federal benefit of deducting state income taxes.

Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities . This ASU amends hedge accounting guidance to better align hedge accounting with risk management activities, while reducing the complexity of applying and reporting on hedge accounting. Under this ASU, the concept of separately measuring and reporting hedge ineffectiveness has been eliminated and entities are required to present the earnings effect of the hedging instrument in the same income statement line item in which the earnings effect of the hedged item is reported. In addition, for a closed pool of pre-payable financial assets, entities will be able to hedge an amount that is not expected to be affected by prepayments, defaults and other events under the “last-of-layer” method. The guidance permits a one-time reclassification of debt securities eligible to be hedged under the “last-of-layer” method from held to maturity to available for sale upon adoption.

We early adopted this ASU in the first quarter of 2018 under the prescribed modified retrospective transition method. As permitted by this ASU, and in order to optimize the investment portfolio management for capital and risk management considerations, we made a one-time election to transfer $ 9.0 billion of held to maturity securities eligible to be hedged under the “last-of-layer” method to the available for sale category, resulting in an increase to AOCI of $ 107 million . See “ Note 3—Investment Securities ” and “ Note 9—Derivative Instruments and Hedging Activities ” for additional information on the impacts of the transfer, as well as the disclosures required under the new guidance.

Classification of Certain Cash Receipts and Cash Payments

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU clarifies certain issues related to classification within the statement of cash flows with the objective of reducing existing diversity in practice. We adopted this ASU in the first quarter of 2018 under the retrospective transition method and our adoption did not have a material impact on our consolidated financial statements.

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Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The primary impact of this ASU to us is the requirement to measure equity investments at fair value with changes in fair value recorded through net income, except those accounted for under the equity method of accounting, or those that do not have a readily determinable fair value (for which a measurement alternative can be elected). We adopted this ASU in the first quarter of 2018 under the modified retrospective method and our adoption did not have a material impact on our consolidated financial statements.

Revenue from Contracts with Customers

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) . Topic 606 was amended through subsequent accounting standard updates that resulted in technical corrections, improvements and a one-year deferral of the effective date to January 1, 2018. Topic 606, as amended, is applicable to all entities and replaced significant portions of existing industry and transaction-specific revenue recognition rules with a more principles-based recognition model. Entities were given an option to apply either a full or modified retrospective method of adoption. Most revenue associated with financial instruments, including interest income, loan origination fees and credit card fees, is outside the scope of the guidance. Gains and losses on investment securities, derivatives and sales of financial instruments are similarly excluded from the scope. We determined interchange fees earned on credit and debit card transactions, net of any related customer rewards, are in the scope of the amended guidance. We assessed the impact of the new guidance by evaluating our contracts, identifying our performance obligations, determining when the performance obligations were satisfied to allow us to recognize revenue and determining the amount of revenue to recognize. As a result of this analysis, we determined our recognition, measurement and presentation of interchange fees net of customer rewards costs will not change. We adopted this guidance in the first quarter of 2018 under the modified retrospective transition method and our adoption did not have a material impact on our consolidated financial statements. See “

Note 13—Business Segments and Revenue from Contracts with Customers ” for the new disclosures required under this guidance.

Recently Issued but Not Yet Adopted Accounting Standards

Implementation Costs Incurred in a Cloud Computing Arrangement

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU. This guidance is effective for us on January 1, 2020, with early adoption permitted, using either the retrospective or prospective method of adoption. We are currently evaluating the impact of adopting this standard.

Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. This ASU shortens the amortization period to the earliest call date for certain purchased callable debt securities held at a premium. There is no change for accounting for securities held at a discount. Under the existing guidance, the premium is generally amortized as an adjustment to interest income over the contractual life of the debt security. This guidance is effective for us on January 1, 2019, with early adoption permitted, using the modified retrospective method of adoption. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements and plan to adopt the standard on its effective date.

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Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment . The guidance in this ASU is intended to reduce the cost and complexity of testing goodwill for impairment by eliminating the second step from the current goodwill impairment test. Under the existing guidance, the first step compares a reporting unit’s carrying value to its fair value. If the carrying value exceeds fair value, an entity performs the second step, which assigns the reporting unit’s fair value to its assets and liabilities, including unrecognized assets and liabilities, in the same manner as required in purchase accounting. Under the new guidance, any impairment of a reporting unit’s goodwill is determined based on the amount by which the reporting unit’s carrying value exceeds its fair value, limited to the amount of goodwill allocated to the reporting unit. This guidance is effective for us on January 1, 2020, with early adoption permitted, using the prospective method of adoption. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements and plan to adopt the standard on its effective date.

Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments . This ASU requires an impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected rather than incurred losses, with an anticipated result of more timely loss recognition. The CECL model is applicable to financial assets measured at amortized cost, net investments in leases that are not accounted for at fair value through net income and certain off-balance sheet arrangements. The CECL model will replace our current accounting for purchased credit-impaired (“PCI”) and impaired loans. This ASU also amends the available for sale (“AFS”) debt securities other-than-temporary impairment (“OTTI”) model. Credit losses (and subsequent recoveries) on AFS debt securities will be recorded through an allowance approach, rather than the current U.S. GAAP practice of permanent write-downs for credit losses and accreting positive changes through interest income over time.

This guidance is effective for us on January 1, 2020, with early adoption permitted no earlier than January 1, 2019, using the modified retrospective method of adoption. We plan to adopt the standard on its effective date. We have established a company-wide, cross-functional governance structure for our implementation of this standard. We are in the process of determining key accounting interpretations, data requirements and necessary changes to our credit loss estimation methods, processes and systems. We continue to assess the potential impact on our consolidated financial statements and related disclosures. Due to the significant differences in the revised guidance from existing U.S. GAAP, the implementation of this guidance may result in increases to our reserves for credit losses on financial instruments.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU requires lessees to recognize right of use assets and lease liabilities on their consolidated balance sheets and disclose key information about all their leasing arrangements, with certain practical expedients. This guidance is effective for us on January 1, 2019, with early adoption permitted. We plan to adopt the standard on its effective date using the modified retrospective method of adoption without restating prior periods. We also expect to elect the practical expedients which provide that entities need not reassess whether existing contracts contain a lease, lease classification of existing leases, or the treatment of initial direct costs on existing leases. We are currently in the process of completing our review of lease contracts, evaluating other contracts for potential embedded leases, implementing a new lease accounting and administration software solution, and establishing new processes and internal controls.

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Business Developments

Consumer Home Loan Portfolio Sale

We sold the substantial majority of our consumer home loan portfolio and the related servicing in the second quarter of 2018, and transferred the remaining consumer home loan portfolio of $398 million to loans held for sale as of June 30, 2018. These actions resulted in a net gain of approximately $400 million in the second quarter of 2018, including a benefit for credit losses of $46 million, which was reflected in the Other category. In the third quarter of 2018, we sold substantially all of the remaining consumer home loan portfolio and recognized a gain of $99 million in the Other category.

Restructuring Activities

We periodically initiate restructuring activities to support business strategies and enhance our overall operational efficiency. These restructuring activities have primarily consisted of exiting certain business locations and activities as well as the realignment of resources supporting various businesses, including the decisions within our Consumer Banking business to cease new originations of home loan lending products in the fourth quarter of 2017 , to sell our online retail brokerage business in the first quarter of 2018 and to sell substantially all of our consumer home loan portfolio in the second and third quarters of 2018. The charges incurred as a result of these restructuring activities have primarily consisted of severance and related benefits pursuant to our ongoing benefit programs, which are included in salaries and associate benefits within non-interest expense in our consolidated statements of income, as well as impairment of certain assets related to business locations and activities being exited, which are generally included in occupancy and equipment within non-interest expense.

There was no restructuring charge recognized in the third quarter of 2018 . For the nine months ended September 30, 2018 , we recognized restructuring charges of $ 34 million , which are reflected in the Other category of our business segment results. We had a liability of $ 20 million associated with restructuring activities, which is recorded in other liabilities on our consolidated balance sheets as of September 30, 2018 . We recognized restructuring charges of $ 108 million for both the three and nine months ended September 30, 2017 . As of September 30, 2018 , our online retail brokerage business had liabilities held for sale primarily consisting of customer deposits of $ 1.5 billion . When the transaction closes, we will transfer these customer deposits and an equal cash amount to the third-party purchaser.

Discontinued Operations

Our discontinued operations consist of the mortgage origination operations of our wholesale mortgage banking unit, GreenPoint Mortgage Funding, Inc. (“GreenPoint”) and the manufactured housing operations of GreenPoint Credit, LLC, a subsidiary of GreenPoint, both of which were acquired as part of the North Fork Bancorporation, Inc. (“North Fork”) acquisition in December 2006. Although the manufactured housing operations were sold to a third party in 2004 prior to our acquisition of North Fork, we acquired certain retained interests and obligations related to those operations as part of the acquisition. Separately, in the third quarter of 2007 we closed the mortgage origination operations of the wholesale mortgage banking unit. The results of both the wholesale banking unit and the manufactured housing operations have been accounted for as discontinued operations and are reported as income or loss from discontinued operations, net of tax, on the consolidated statements of income. Income from discontinued operations, net of tax, was $ 1 million in the third quarter of 2018, compared to a loss of $ 30 million in the third quarter of 2017 . Loss from discontinued operations, net of tax, was $ 7 million and $ 26 million for the nine months ended September 30, 2018 and 2017 , respectively. As of September 30, 2018 , we had no significant continuing involvement in the operations of our wholesale mortgage banking unit.

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Our investment securities portfolio consists primarily of the following: U.S. Treasury securities; U.S. government-sponsored enterprise or agency (“Agency”) and non-agency residential mortgage-backed securities (“RMBS”); Agency commercial mortgage-backed securities (“CMBS”); other asset-backed securities (“ABS”); and other securities. Agency securities include Government National Mortgage Association (“Ginnie Mae”) guaranteed securities, Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) issued securities. The carrying value of our investments in U.S. Treasury and Agency securities represented 96 % and 95 % of our total investment securities as of September 30, 2018 and December 31, 2017 , respectively.

In the first quarter of 2018, we made a one-time transfer of held to maturity securities with a carrying value of $ 9.0 billion to available for sale as a result of our adoption of ASU No. 2017-12. See “ Note 1—Summary of Significant Accounting Policies ” and “ Note 10—Stockholders’ Equity ” for more information.

The table below presents an overview of our investment securities portfolio as of September 30, 2018 and December 31, 2017 .

Table 3.1 : Overview of Investment Securities Portfolio

(Dollars in millions)		September 30, 2018				December 31, 2017
Securities available for sale, at fair value		$	47,384			$	37,655
Securities held to maturity, at carrying value		34,631				28,984
Total investment securities		$	82,015			$	66,639

The table below presents the amortized cost, gross unrealized gains and losses, and fair value of securities available for sale as of September 30, 2018 and December 31, 2017 .

Table 3.2 : Investment Securities Available for Sale

		September 30, 2018
(Dollars in millions)		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses (1)				Fair Value
Investment securities available for sale:
U.S. Treasury securities		$	6,012			$	24			$	( 28	)		$	6,008
RMBS:
Agency		34,134				32				( 1,170		)		32,996
Non-agency		1,495				375				( 1		)		1,869
Total RMBS		35,629				407				( 1,171		)		34,865
Agency CMBS		5,008				9				( 94		)		4,923
Other ABS		277				0				( 2		)		275
Other securities (2)		1,319				4				( 10		)		1,313
Total investment securities available for sale		$	48,245			$	444			$	( 1,305	)		$	47,384

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		December 31, 2017
(Dollars in millions)		Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses (1)				Fair Value
Investment securities available for sale:
U.S. Treasury securities		$	5,168			$	11			$	( 8	)		$	5,171
RMBS:
Agency		26,013				67				( 402		)		25,678
Non-agency		1,722				393				( 1		)		2,114
Total RMBS		27,735				460				( 403		)		27,792
Agency CMBS		3,209				10				( 44		)		3,175
Other ABS		513				0				( 1		)		512
Other securities (2)		1,003				4				( 2		)		1,005
Total investment securities available for sale		$	37,628			$	485			$	( 458	)		$	37,655

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(1)	Includes non-credit-related OTTI that is recorded in AOCI of $ 1 million as of both September 30, 2018 and December 31, 2017 . Substantially all of this amount is related to non-agency RMBS.

(2)	Includes primarily supranational bonds and foreign government bonds.

The table below presents the amortized cost, carrying value, gross unrealized gains and losses, and fair value of securities held to maturity as of September 30, 2018 and December 31, 2017 . In the first quarter of 2018, we made a one-time transfer of held to maturity securities with a carrying value of $ 9.0 billion to available for sale as a result of our adoption of ASU No. 2017-12. These securities had $ 535 million pre-tax ( $ 407 million after-tax) of unrealized losses in AOCI prior to the transfer. See “ Note 10—Stockholders’ Equity ” for more information.

Table 3.3 : Investment Securities Held to Maturity

		September 30, 2018
(Dollars in millions)		Amortized Cost				Unrealized Losses Recorded in AOCI				Carrying Value				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Agency RMBS		$	31,511			$	( 246	)		$	31,265			$	112			$	( 714	)		$	30,663
Agency CMBS		3,380				( 14		)		3,366				6				( 135		)		3,237
Total investment securities held to maturity		$	34,891			$	( 260	)		$	34,631			$	118			$	( 849	)		$	33,900

		December 31, 2017
(Dollars in millions)		Amortized Cost				Unrealized Losses Recorded in AOCI				Carrying Value				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
U.S. Treasury securities		$	200			$	0			$	200			$	0			$	0			$	200
Agency RMBS		25,741				( 761		)		24,980				565				( 150		)		25,395
Agency CMBS		3,882				( 78		)		3,804				70				( 32		)		3,842
Total investment securities held to maturity		$	29,823			$	( 839	)		$	28,984			$	635			$	( 182	)		$	29,437

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Investment Securities in a Gross Unrealized Loss Position

The table below provides, by major security type, information about our securities available for sale in a gross unrealized loss position and the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2018 and December 31, 2017 .

Table 3.4 : Securities in a Gross Unrealized Loss Position

		September 30, 2018
		Less than 12 Months								12 Months or Longer								Total
(Dollars in millions)		Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses
Investment securities available for sale:
U.S. Treasury securities		$	732			$	( 12	)		$	329			$	( 16	)		$	1,061			$	( 28	)
RMBS:
Agency		13,960				( 471		)		13,717				( 699		)		27,677				( 1,170		)
Non-agency		19				0				15				( 1		)		34				( 1		)
Total RMBS		13,979				( 471		)		13,732				( 700		)		27,711				( 1,171		)
Agency CMBS		2,246				( 47		)		1,053				( 47		)		3,299				( 94		)
Other ABS		65				( 1		)		128				( 1		)		193				( 2		)
Other securities		751				( 7		)		132				( 3		)		883				( 10		)
Total investment securities available for sale in a gross unrealized loss position		$	17,773			$	( 538	)		$	15,374			$	( 767	)		$	33,147			$	( 1,305	)

		December 31, 2017
		Less than 12 Months								12 Months or Longer								Total
(Dollars in millions)		Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses				Fair Value				Gross Unrealized Losses
Investment securities available for sale:
U.S. Treasury securities		$	2,031			$	( 8	)		$	0			$	0			$	2,031			$	( 8	)
RMBS:
Agency		8,192				( 67		)		13,175				( 335		)		21,367				( 402		)
Non-agency		10				0				10				( 1		)		20				( 1		)
Total RMBS		8,202				( 67		)		13,185				( 336		)		21,387				( 403		)
Agency CMBS		880				( 8		)		1,236				( 36		)		2,116				( 44		)
Other ABS		130				0				95				( 1		)		225				( 1		)
Other securities		371				( 2		)		0				0				371				( 2		)
Total investment securities available for sale in a gross unrealized loss position		$	11,614			$	( 85	)		$	14,516			$	( 373	)		$	26,130			$	( 458	)

As of September 30, 2018 , the amortized cost of approximately 1,380 securities available for sale exceeded their fair value by $ 1.3 billion , of which $ 767 million related to securities that had been in a loss position for 12 months or longer. As of September 30, 2018 , the carrying value of approximately 450 securities classified as held to maturity exceeded their fair value by $ 849 million .

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Maturities and Yields of Investment Securities

The table below summarizes, by major security type, the contractual maturities and weighted-average yields of our investment securities as of September 30, 2018 . Because borrowers may have the right to call or prepay certain obligations, the expected maturities of our securities are likely to differ from the scheduled contractual maturities presented below. The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security.

Table 3.5 : Contractual Maturities and Weighted-Average Yields of Securities

		September 30, 2018
(Dollars in millions)		Due in 1 Year or Less				Due > 1 Year through 5 Years				Due > 5 Years through 10 Years				Due > 10 Years				Total
Fair value of securities available for sale:
U.S. Treasury securities		$	446			$	770			$	4,792			$	0			$	6,008
RMBS (1) :
Agency		6				27				504				32,459				32,996
Non-agency		0				0				0				1,869				1,869
Total RMBS		6				27				504				34,328				34,865
Agency CMBS (1)		10				1,845				1,492				1,576				4,923
Other ABS (1)		14				238				0				23				275
Other securities		190				591				532				0				1,313
Total securities available for sale		$	666			$	3,471			$	7,320			$	35,927			$	47,384
Amortized cost of securities available for sale		$	670			$	3,516			$	7,330			$	36,729			$	48,245
Weighted-average yield for securities available for sale		1.48		%		2.24		%		2.36		%		2.78		%		2.66		%
Carrying value of securities held to maturity:
Agency RMBS (1)		$	0			$	0			$	53			$	31,212			$	31,265
Agency CMBS (1)		0				72				388				2,906				3,366
Total securities held to maturity		$	0			$	72			$	441			$	34,118			$	34,631
Fair value of securities held to maturity		$	0			$	72			$	418			$	33,410			$	33,900
Weighted-average yield for securities held to maturity		0.00		%		3.53		%		2.83		%		3.29		%		3.28		%

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(1)	As of September 30, 2018 , weighted-average expected maturities of RMBS, CMBS and other ABS are 6.8 years , 5.3 years and 1.0 year , respectively.

Other-Than-Temporary Impairment

We evaluate all securities in an unrealized loss position at least on a quarterly basis, and more often as market conditions require, to assess whether the impairment is other-than-temporary. Our OTTI assessment is based on a discounted cash flow analysis which requires careful use of judgments and assumptions. A number of qualitative and quantitative criteria may be considered in our assessment as applicable, including the size and the nature of the portfolio; historical and projected performance such as prepayment, default and loss severity for the RMBS portfolio; recent credit events specific to the issuer and/or industry to which the issuer belongs; the payment structure of the security; external credit ratings of the issuer and any failure or delay of the issuer to make scheduled interest or principal payments; the value of underlying collateral; our intent and ability to hold the security; and current and projected market and macro-economic conditions.

If we intend to sell a security in an unrealized loss position or it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis, the entire difference between the amortized cost basis of the security and its fair value is recognized in earnings. As of September 30, 2018 , we had the intent to sell securities with unrealized losses of $ 200 million and accordingly recognized that amount as OTTI in earnings. We do not intend to sell, nor believe that we will be required to sell, any other securities prior to recovery of their amortized cost.

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For those securities that we do not intend to sell nor expect to be required to sell, an analysis is performed to determine if any of the impairment is due to credit-related factors or whether it is due to other factors, such as interest rates. Credit-related impairment is recognized in earnings, with the remaining unrealized non-credit-related impairment recorded in AOCI. We determine the credit component based on the difference between the security’s amortized cost basis and the present value of its expected cash flows, discounted based on the effective yield.

Realized Gains and Losses on Securities and OTTI Recognized in Earnings

The following table presents the gross realized gains and losses on the sale and redemption of securities available for sale for the three and nine months ended September 30, 2018 and 2017 . We also present the proceeds from the sale of securities available for sale for the periods indicated. We did not sell any investment securities that are classified as held to maturity.

Table 3.6 : Realized Gains (Losses) on Securities and OTTI Recognized in Earnings

		Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in millions)		2018				2017				2018				2017
Realized gains (losses):
Gross realized gains		$	4			$	118			$	12			$	123
Gross realized losses		0				( 49		)		( 1		)		( 54		)
Net realized gains		4				69				11				69
OTTI recognized in earnings:
Credit-related OTTI		0				( 1		)		0				( 2		)
Intent-to-sell OTTI		( 200		)		0				( 200		)		( 3		)
Total OTTI recognized in earnings		( 200		)		( 1		)		( 200		)		( 5		)
Net securities gains (losses)		$	( 196	)		$	68			$	( 189	)		$	64
Total proceeds from sales		$	2,454			$	2,670			$	3,512			$	5,793

The cumulative credit loss component of the OTTI losses that have been recognized in our consolidated statements of income related to the securities that we do not intend to sell was $ 140 million and $ 147 million as of September 30, 2018 and 2017 , respectively.

Securities Pledged and Received

As part of our liquidity management strategy, we pledge securities to secure borrowings from counterparties including Federal Home Loan Banks (“FHLB”). We also pledge securities to secure trust and public deposits and for other purposes as required or permitted by law. We pledged securities available for sale with a fair value of $ 785 million and $ 2.8 billion as of September 30, 2018 and December 31, 2017 , respectively. We also pledged securities held to maturity with a carrying value of $ 15.5 billion and $ 5.7 billion as of September 30, 2018 and December 31, 2017 , respectively. We accepted pledges of securities with a fair value of $ 1 million as of both September 30, 2018 and December 31, 2017 , primarily related to our derivative transactions.

Purchased Credit-Impaired Debt Securities

The table below presents the outstanding balance and carrying value of the purchased credit-impaired debt securities as of September 30, 2018 and December 31, 2017 .

Table 3.7 : Outstanding Balance and Carrying Value of Purchased Credit-Impaired Debt Securities

(Dollars in millions)		September 30, 2018				December 31, 2017
Outstanding balance		$	1,860			$	2,131
Carrying value		1,650				1,843

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Changes in Accretable Yield of Purchased Credit-Impaired Debt Securities

The following table presents changes in the accretable yield related to the purchased credit-impaired debt securities for the three and nine months ended September 30, 2018 .

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Loan Portfolio Composition

Our loan portfolio consists of loans held for investment, including loans held in our consolidated trusts, and loans held for sale, and is divided into three portfolio segments: credit card, consumer banking and commercial banking. Credit card loans consist of domestic and international credit card loans. Consumer banking loans consist of auto and retail banking loans and in prior periods also consisted of home loans. Commercial banking loans consist of commercial and multifamily real estate, commercial and industrial, and small-ticket commercial real estate loans. We sold substantially all of our consumer home loan portfolio and the related servicing during the first nine months of 2018.

Credit Quality

Table 4.1 : Loan Portfolio Composition and Aging Analysis

		September 30, 2018
(Dollars in millions)		Current				30-59 Days				60-89 Days				> 90 Days				Total Delinquent Loans				PCI Loans				Total Loans
Credit Card:
Domestic credit card		$	97,700			$	1,202			$	877			$	1,785			$	3,864			$	0			$	101,564
International card businesses		8,783				136				78				124				338				0				9,121
Total credit card		106,483				1,338				955				1,909				4,202				0				110,685
Consumer Banking:
Auto		52,542				2,384				1,186				310				3,880				0				56,422
Retail banking		2,857				19				11				15				45				5				2,907
Total consumer banking		55,399				2,403				1,197				325				3,925				5				59,329
Commercial Banking:
Commercial and multifamily real estate		29,018				2				20				1				23				23				29,064
Commercial and industrial		38,835				26				25				104				155				335				39,325
Total commercial lending		67,853				28				45				105				178				358				68,389
Small-ticket commercial real estate		352				3				0				3				6				0				358
Total commercial banking		68,205				31				45				108				184				358				68,747
Other loans		0				0				0				0				0				0				0
Total loans (1)		$	230,087			$	3,772			$	2,197			$	2,342			$	8,311			$	363			$	238,761
% of Total loans		96.37		%		1.58		%		0.92		%		0.98		%		3.48		%		0.15		%		100.00		%

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		December 31, 2017
(Dollars in millions)		Current				30-59 Days				60-89 Days				> 90 Days				Total Delinquent Loans				PCI Loans				Total Loans
Credit Card:
Domestic credit card		$	101,072			$	1,211			$	915			$	2,093			$	4,219			$	2			$	105,293
International card businesses		9,110				144				81				134				359				0				9,469
Total credit card		110,182				1,355				996				2,227				4,578				2				114,762
Consumer Banking:
Auto		50,151				2,483				1,060				297				3,840				0				53,991
Home loan		7,235				37				16				70				123				10,275				17,633
Retail banking		3,389				24				5				18				47				18				3,454
Total consumer banking		60,775				2,544				1,081				385				4,010				10,293				75,078
Commercial Banking:
Commercial and multifamily real estate		26,018				41				17				49				107				25				26,150
Commercial and industrial		37,412				1				70				87				158				455				38,025
Total commercial lending		63,430				42				87				136				265				480				64,175
Small-ticket commercial real estate		393				2				1				4				7				0				400
Total commercial banking		63,823				44				88				140				272				480				64,575
Other loans		54				2				1				1				4				0				58
Total loans (1)		$	234,834			$	3,945			$	2,166			$	2,753			$	8,864			$	10,775			$	254,473
% of Total loans		92.29		%		1.55		%		0.85		%		1.08		%		3.48		%		4.23		%		100.00		%

__________

(1)	Loans, other than PCI loans, include unamortized premiums and discounts, and unamortized deferred fees and costs totaling $ 803 million and $ 773 million as of September 30, 2018 and December 31, 2017 , respectively.

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Our credit card loan portfolio is highly diversified across millions of accounts and numerous geographies without significant individual exposure. We therefore generally manage credit risk based on portfolios with common risk characteristics. The risk in our credit card loan portfolio correlates to broad economic trends, such as unemployment rates and home values, as well as consumers’ financial condition, all of which can have a material effect on credit performance. The primary indicators we assess in monitoring the credit quality and risk of our credit card portfolio are delinquency and charge-off trends, including an analysis of loan migration between delinquency categories over time.

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The table below displays the geographic profile of our credit card loan portfolio as of September 30, 2018 and December 31, 2017 .

Table 4.4 : Credit Card Net Charge-Offs

		Three Months Ended September 30,														Nine Months Ended September 30,
		2018							2017							2018							2017
(Dollars in millions)		Amount				Rate (1)			Amount				Rate (1)			Amount				Rate (1)			Amount				Rate (1)
Net charge-offs: (1)
Domestic credit card (2)		$	1,094			4.35	%		$	1,087			4.64	%		$	3,581			4.78	%		$	3,455			4.96	%
International card businesses		43				1.92			68				3.08			193				2.85			227				3.60
Total credit card (2)		$	1,137			4.15			$	1,155			4.51			$	3,774			4.62			$	3,682			4.85

__________

(1)

Net charge-offs consist of the unpaid principal balance of loans held for investment that we determine to be uncollectible, net of recovered amounts. Net charge-off rate is calculated by dividing annualized net charge-offs by average loans held for investment for the period for each loan category. Net charge-offs and net charge-off rate are impacted periodically by fluctuations in recoveries, including loan sales.

(2)

In August 2018, we accelerated charge-off recognition for certain domestic credit card accounts where the cardholder is deceased. This acceleration led to a one-time increase in net charge-offs of approximately $32 million, increasing the net charge-off rate for total credit card and domestic credit card by approximately 12 basis points and 13 basis points, respectively, for the third quarter of 2018, and 4 basis points for both total credit card and domestic credit card for the first nine months of 2018.

Our consumer banking loan portfolio consists of auto and retail banking loans and in prior periods also consisted of home loans. Similar to our credit card loan portfolio, the risk in our consumer banking loan portfolio correlates to broad economic trends, such as unemployment rates, gross domestic product and home values, as well as consumers’ financial condition, all of which can have a material effect on credit performance. Delinquency, nonperforming loans and charge-off trends are key indicators we assess in monitoring the credit quality and risk of our consumer banking loan portfolio.

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The table below displays the geographic profile of our consumer banking loan portfolio as of September 30, 2018 and December 31, 2017 .

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Table 4.6 : Consumer Banking Net Charge-Offs and Nonperforming Loans

		Three Months Ended September 30,														Nine Months Ended September 30,
		2018							2017							2018							2017
(Dollars in millions)		Amount				Rate (1)			Amount				Rate (1)			Amount				Rate (1)			Amount				Rate (1)
Net charge-offs:
Auto		$	243			1.73	%		$	257			1.96	%		$	633			1.53	%		$	671			1.77	%
Home loan		0				0.00			1				0.02			( 1		)		( 0.02	)		5				0.03
Retail banking		19				2.62			18				2.10			51				2.18			50				1.91
Total consumer banking		$	262			1.77			$	276			1.47			$	683			1.36			$	726			1.30

		September 30, 2018							December 31, 2017
(Dollars in millions)		Amount				Rate (2)			Amount				Rate (2)
Nonperforming loans:
Auto		$	396			0.70	%		$	376			0.70	%
Home loan		0				0.00			176				1.00
Retail banking		33				1.13			35				1.00
Total consumer banking		$	429			0.72			$	587			0.78

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(1)	Net charge-off (recovery) rate is calculated by dividing annualized net charge-offs (recoveries) by average loans held for investment for the period for each loan category .

(2)	Nonperforming loan rates are calculated based on nonperforming loans for each category divided by period-end total loans held for investment for each respective category.

We evaluate the credit risk of commercial loans using a risk rating system. We assign internal risk ratings to loans based on relevant information about the ability of the borrowers to repay their debt. In determining the risk rating of a particular loan, some of the factors considered are the borrower’s current financial condition, historical and projected future credit performance, prospects for support from financially responsible guarantors, the estimated realizable value of any collateral and current economic trends. The scale based on our internal risk rating system is as follows:

•	Noncriticized: Loans that have not been designated as criticized, frequently referred to as “pass” loans.

•	Criticized performing: Loans in which the financial condition of the obligor is stressed, affecting earnings, cash flows or collateral values. The borrower currently has adequate capacity to meet near-term obligations; however, the stress, left unabated, may result in deterioration of the repayment prospects at some future date.

•

Criticized nonperforming: Loans that are not adequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Loans classified as criticized nonperforming have a well-defined weakness, or weaknesses, which jeopardize the full repayment of the debt. These loans are characterized by the distinct possibility that we will sustain a credit loss if the deficiencies are not corrected and are generally placed on nonaccrual status.

We use our internal risk rating system for regulatory reporting, determining the frequency of credit exposure reviews, and evaluating and determining the allowance for loan and lease losses for commercial loans. Generally, loans that are designated as criticized performing and criticized nonperforming are reviewed quarterly by management to determine if they are appropriately classified/rated and whether any impairment exists. Noncriticized loans are also generally reviewed, at least annually, to determine the appropriate risk rating. In addition, we evaluate the risk rating during the renewal process of any loan or if a loan becomes past due.

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The following table presents the geographic concentration and internal risk ratings of our commercial loan portfolio as of September 30, 2018 and December 31, 2017 .

Table 4.7 : Commercial Banking Risk Profile by Geographic Region and Internal Risk Rating

		September 30, 2018
(Dollars in millions)		Commercial and Multifamily Real Estate				% of Total			Commercial and Industrial				% of Total			Small-Ticket Commercial Real Estate				% of Total			Total Commercial Banking				% of Total
Geographic concentration: (1)
Northeast		$	16,412			56.5	%		$	7,768			19.8	%		$	221			61.7	%		$	24,401			35.5	%
Mid-Atlantic		3,087				10.6			4,461				11.3			13				3.6			7,561				11.0
South		4,166				14.3			14,653				37.3			21				5.9			18,840				27.4
Other		5,399				18.6			12,443				31.6			103				28.8			17,945				26.1
Total		$	29,064			100.0	%		$	39,325			100.0	%		$	358			100.0	%		$	68,747			100.0	%
Internal risk rating: (2)
Noncriticized		$	28,363			97.6	%		$	37,212			94.5	%		$	351			98.0	%		$	65,926			95.9	%
Criticized performing		641				2.2			1,561				4.0			2				0.6			2,204				3.2
Criticized nonperforming		37				0.1			217				0.6			5				1.4			259				0.4
PCI loans		23				0.1			335				0.9			0				0.0			358				0.5
Total		$	29,064			100.0	%		$	39,325			100.0	%		$	358			100.0	%		$	68,747			100.0	%

		December 31, 2017
(Dollars in millions)		Commercial and Multifamily Real Estate				% of Total			Commercial and Industrial				% of Total			Small-Ticket Commercial Real Estate				% of Total			Total Commercial Banking				% of Total
Geographic concentration: (1)
Northeast		$	14,969			57.3	%		$	7,774			20.4	%		$	250			62.4	%		$	22,993			35.7	%
Mid-Atlantic		2,675				10.2			3,922				10.3			15				3.8			6,612				10.2
South		3,719				14.2			14,739				38.8			22				5.5			18,480				28.6
Other		4,787				18.3			11,590				30.5			113				28.3			16,490				25.5
Total		$	26,150			100.0	%		$	38,025			100.0	%		$	400			100.0	%		$	64,575			100.0	%
Internal risk rating: (2)
Noncriticized		$	25,609			98.0	%		$	35,161			92.5	%		$	392			97.9	%		$	61,162			94.7	%
Criticized performing		478				1.8			2,170				5.7			1				0.3			2,649				4.1
Criticized nonperforming		38				0.1			239				0.6			7				1.8			284				0.4
PCI loans		25				0.1			455				1.2			0				0.0			480				0.8
Total		$	26,150			100.0	%		$	38,025			100.0	%		$	400			100.0	%		$	64,575			100.0	%

__________

(1)	Geographic concentration is generally determined by the location of the borrower’s business or the location of the collateral associated with the loan. Northeast consists of CT, MA, ME, NH, NJ, NY, PA and VT. Mid-Atlantic consists of DC, DE, MD, VA and WV. South consists of AL, AR, FL, GA, KY, LA, MO, MS, NC, SC, TN and TX.

(2)	Criticized exposures correspond to the “Special Mention,” “Substandard” and “Doubtful” asset categories defined by bank regulatory authorities.

The following table presents information on our impaired loans as of September 30, 2018 and December 31, 2017 , and for the three and nine months ended September 30, 2018 and 2017 . Impaired loans include loans modified in troubled debt restructurings (“TDRs”), all nonperforming commercial loans and nonperforming home loans with a specific impairment. Impaired loans without an allowance generally represent loans that have been charged down to the fair value of the underlying collateral for which we believe no additional losses have been incurred, or where the fair value of the underlying collateral meets or exceeds the loan’s amortized cost. PCI loans are excluded from the following tables.

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Table 4.8 : Impaired Loans

		September 30, 2018
(Dollars in millions)		With an Allowance				Without an Allowance				Total Recorded Investment				Related Allowance				Net Recorded Investment				Unpaid Principal Balance
Credit Card:
Domestic credit card		$	665			$	0			$	665			$	193			$	472			$	653
International card businesses		190				0				190				92				98				184
Total credit card (1)		855				0				855				285				570				837
Consumer Banking:
Auto (2)		295				53				348				24				324				468
Retail banking		49				8				57				8				49				62
Total consumer banking		344				61				405				32				373				530
Commercial Banking:
Commercial and multifamily real estate		85				1				86				6				80				87
Commercial and industrial		485				78				563				79				484				623
Total commercial lending		570				79				649				85				564				710
Small-ticket commercial real estate		6				0				6				0				6				8
Total commercial banking		576				79				655				85				570				718
Total		$	1,775			$	140			$	1,915			$	402			$	1,513			$	2,085

		December 31, 2017
(Dollars in millions)		With an Allowance				Without an Allowance				Total Recorded Investment				Related Allowance				Net Recorded Investment				Unpaid Principal Balance
Credit Card:
Domestic credit card		$	639			$	0			$	639			$	208			$	431			$	625
International card businesses		173				0				173				84				89				167
Total credit card (1)		812				0				812				292				520				792
Consumer Banking:
Auto (2)		363				118				481				30				451				730
Home loan		192				41				233				15				218				298
Retail banking		51				10				61				8				53				66
Total consumer banking		606				169				775				53				722				1,094
Commercial Banking:
Commercial and multifamily real estate		138				2				140				13				127				143
Commercial and industrial		489				222				711				63				648				844
Total commercial lending		627				224				851				76				775				987
Small-ticket commercial real estate		7				0				7				0				7				9
Total commercial banking		634				224				858				76				782				996
Total		$	2,052			$	393			$	2,445			$	421			$	2,024			$	2,882

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		Three Months Ended September 30,																Nine Months Ended September 30,
		2018								2017								2018								2017
(Dollars in millions)		Average Recorded Investment				Interest Income Recognized				Average Recorded Investment				Interest Income Recognized				Average Recorded Investment				Interest Income Recognized				Average Recorded Investment				Interest Income Recognized
Credit Card:
Domestic credit card		$	659			$	15			$	601			$	16			$	653			$	47			$	593			$	47
International card businesses		186				3				160				3				182				9				150				8
Total credit card (1)		845				18				761				19				835				56				743				55
Consumer Banking:
Auto (2)		366				11				485				13				411				35				498				39
Home loan		0				0				288				2				114				1				316				4
Retail banking		59				0				60				0				60				1				59				1
Total consumer banking		425				11				833				15				585				37				873				44
Commercial Banking:
Commercial and multifamily real estate		67				1				152				1				86				2				132				3
Commercial and industrial		583				6				1,130				5				658				16				1,220				13
Total commercial lending		650				7				1,282				6				744				18				1,352				16
Small-ticket commercial real estate		5				0				8				0				6				0				7				0
Total commercial banking		655				7				1,290				6				750				18				1,359				16
Total		$	1,925			$	36			$	2,884			$	40			$	2,170			$	111			$	2,975			$	115

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(1)	The period-end and average recorded investments of credit card loans include finance charges and fees.

(2)	Includes certain TDRs that are recorded as other assets on our consolidated balance sheets.

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Table 4.9 : Troubled Debt Restructurings

		Total Loans Modified (1)				Three Months Ended September 30, 2018
						Reduced Interest Rate						Term Extension					Balance Reduction
(Dollars in millions)						% of TDR Activity (2)			Average Rate Reduction			% of TDR Activity (2)			Average Term Extension (Months)		% of TDR Activity (2)			Gross Balance Reduction
Credit Card:
Domestic credit card		$	105			100	%		16.01	%		0	%		0		0	%		$	0
International card businesses		46				100			26.95			0			0		0			0
Total credit card		151				100			19.35			0			0		0			0
Consumer Banking:
Auto (3)		47				51			3.88			85			9		1			0
Retail banking		0				100			10.45			5			12		0			0
Total consumer banking		47				52			3.93			85			9		1			0
Commercial Banking:
Commercial and multifamily real estate		22				0			0.00			61			3		0			0
Commercial and industrial		50				0			0.00			13			8		0			0
Total commercial lending		72				0			0.00			28			5		0			0
Small-ticket commercial real estate		1				0			0.00			0			0		0			0
Total commercial banking		73				0			0.00			28			5		0			0
Total		$	271			65			17.26			22			8		0			$	0

		Total Loans Modified (1)				Nine Months Ended September 30, 2018
						Reduced Interest Rate						Term Extension					Balance Reduction
(Dollars in millions)						% of TDR Activity (2)			Average Rate Reduction			% of TDR Activity (2)			Average Term Extension (Months)		% of TDR Activity (2)			Gross Balance Reduction
Credit Card:
Domestic credit card		$	314			100	%		15.88	%		0	%		0		0	%		$	0
International card businesses		139				100			26.87			0			0		0			0
Total credit card		453				100			19.25			0			0		0			0
Consumer Banking:
Auto (3)		153				55			3.91			87			8		1			1
Home loan		6				28			1.78			83			214		0			0
Retail banking		6				14			11.09			48			6		0			0
Total consumer banking		165				53			3.94			86			15		1			1
Commercial Banking:
Commercial and multifamily real estate		41				0			0.00			79			5		0			0
Commercial and industrial		147				0			1.19			47			14		0			0
Total commercial lending		188				0			1.19			54			11		0			0
Small-ticket commercial real estate		3				0			0.00			0			0		0			0
Total commercial banking		191				0			1.19			53			11		0			0
Total		$	809			67			16.79			30			14		0			$	1

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		Total Loans Modified (1)				Three Months Ended September 30, 2017
						Reduced Interest Rate						Term Extension					Balance Reduction
(Dollars in millions)						% of TDR Activity (2)			Average Rate Reduction			% of TDR Activity (2)			Average Term Extension (Months)		% of TDR Activity (2)			Gross Balance Reduction
Credit Card:
Domestic credit card		$	107			100	%		14.51	%		0	%		0		0	%		$	0
International card businesses		41				100			26.71			0			0		0			0
Total credit card		148				100			17.85			0			0		0			0
Consumer Banking:
Auto (3)		104				35			3.78			99			5		0			0
Home loan		3				19			1.35			53			292		0			0
Retail banking		7				13			9.30			82			10		0			0
Total consumer banking		114				33			3.88			97			9		0			0
Commercial Banking:
Commercial and multifamily real estate		3				0			0.00			100			6		0			0
Commercial and industrial		202				24			0.24			96			18		0			0
Total commercial lending		205				24			0.24			96			18		0			0
Small-ticket commercial real estate		1				0			0.00			12			0		0			0
Total commercial banking		206				24			0.24			96			18		0			0
Total		$	468			50			11.91			66			15		0			$	0

		Total Loans Modified (1)				Nine Months Ended September 30, 2017
						Reduced Interest Rate						Term Extension					Balance Reduction
(Dollars in millions)						% of TDR Activity (2)			Average Rate Reduction			% of TDR Activity (2)			Average Term Extension (Months)		% of TDR Activity (2)			Gross Balance Reduction
Credit Card:
Domestic credit card		$	291			100	%		14.25	%		0	%		0		0	%		$	0
International card businesses		124				100			26.46			0			0		0			0
Total credit card		415				100			17.90			0			0		0			0
Consumer Banking:
Auto (3)		240				44			3.83			96			6		3			7
Home loan		17				49			2.44			79			234		2			0
Retail banking		13				21			5.56			73			10		0			0
Total consumer banking		270				44			3.77			94			18		3			7
Commercial Banking:
Commercial and multifamily real estate		29				7			0.02			26			5		0			0
Commercial and industrial		483				15			0.81			59			18		0			0
Total commercial lending		512				15			0.79			57			18		0			0
Small-ticket commercial real estate		2				0			0.00			5			0		0			0
Total commercial banking		514				15			0.79			57			18		0			0
Total		$	1,199			51			13.04			45			18		0			$	7

__________

(1)	Represents the recorded investment of total loans modified in TDRs at the end of the quarter in which they were modified. As not every modification type is included in the table above, the total percentage of TDR activity may not add up to 100%. Some loans may receive more than one type of concession as part of the modification.

(2)	Due to multiple concessions granted to some troubled borrowers, percentages may total more than 100% for certain loan types.

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(3)	Includes certain TDRs that are recorded as other assets on our consolidated balance sheets.

TDRs—Subsequent Defaults of Completed TDR Modifications

The following table presents the type, number and recorded investment of loans modified in TDRs that experienced a default during the period and had completed a modification event in the twelve months prior to the default. A default occurs if the loan is either 90 days or more delinquent, has been charged off as of the end of the period presented or has been reclassified from accrual to nonaccrual status.

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Our allowance for loan and lease losses represents management’s best estimate of incurred loan and lease losses inherent in our loans held for investment portfolio as of each balance sheet date. In addition to the allowance for loan and lease losses, we also estimate probable losses related to unfunded lending commitments, such as letters of credit, financial guarantees and binding unfunded loan commitments. The provision for losses on unfunded lending commitments is included in the provision for credit losses in our consolidated statements of income and the related reserve for unfunded lending commitments is included in other liabilities on our consolidated balance sheets. See “Note 1—Summary of Significant Accounting Policies” in our 2017 Form 10-K for further discussion of the methodology and policy for determining our allowance for loan and lease losses for each of our loan portfolio segments, as well as information on our reserve for unfunded lending commitments.

Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments Activity

The table below summarizes changes in the allowance for loan and lease losses and reserve for unfunded lending commitments by portfolio segment for the three and nine months ended September 30, 2018 and 2017 .

Table 5.1 : Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments Activity

		Three Months Ended September 30, 2018
(Dollars in millions)		Credit Card				Consumer Banking				Commercial Banking				Other				Total
Allowance for loan and lease losses:
Balance as of June 30, 2018		$	5,624			$	1,120			$	624			$	0			$	7,368
Charge-offs		( 1,528		)		( 469		)		( 48		)		1				( 2,044		)
Recoveries		391				207				21				0				619
Net charge-offs		( 1,137		)		( 262		)		( 27		)		1				( 1,425		)
Provision (benefit) for loan and lease losses		1,031				185				60				( 1		)		1,275
Allowance build (release) for loan and lease losses		( 106		)		( 77		)		33				0				( 150		)
Other changes (1)		2				0				( 1		)		0				1
Balance as of September 30, 2018		5,520				1,043				656				0				7,219
Reserve for unfunded lending commitments:
Balance as of June 30, 2018		0				5				112				0				117
Benefit for losses on unfunded lending commitments		0				( 1		)		( 6		)		0				( 7		)
Balance as of September 30, 2018		0				4				106				0				110
Combined allowance and reserve as of September 30, 2018		$	5,520			$	1,047			$	762			$	0			$	7,329

		Nine Months Ended September 30, 2018
(Dollars in millions)		Credit Card				Consumer Banking (2)				Commercial Banking				Other (2)				Total
Allowance for loan and lease losses:
Balance as of December 31, 2017		$	5,648			$	1,242			$	611			$	1			$	7,502
Charge-offs		( 5,032		)		( 1,314		)		( 76		)		( 7		)		( 6,429		)
Recoveries		1,258				631				37				1				1,927
Net charge-offs		( 3,774		)		( 683		)		( 39		)		( 6		)		( 4,502		)
Provision (benefit) for loan and lease losses		3,658				538				85				( 49		)		4,232
Allowance build (release) for loan and lease losses		( 116		)		( 145		)		46				( 55		)		( 270		)
Other changes (1)(2)		( 12		)		( 54		)		( 1		)		54				( 13		)
Balance as of September 30, 2018		5,520				1,043				656				0				7,219
Reserve for unfunded lending commitments:
Balance as of December 31, 2017		0				7				117				0				124
Benefit for losses on unfunded lending commitments		0				( 3		)		( 11		)		0				( 14		)
Balance as of September 30, 2018		0				4				106				0				110
Combined allowance and reserve as of September 30, 2018		$	5,520			$	1,047			$	762			$	0			$	7,329

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		Three Months Ended September 30, 2017
(Dollars in millions)		Credit Card				Consumer Banking				Commercial Banking				Other (3)				Total
Allowance for loan and lease losses:
Balance as of June 30, 2017		$	5,210			$	1,199			$	758			$	3			$	7,170
Charge-offs		( 1,471		)		( 435		)		( 168		)		( 36		)		( 2,110		)
Recoveries		316				159				5				24				504
Net charge-offs		( 1,155		)		( 276		)		( 163		)		( 12		)		( 1,606		)
Provision for loan and lease losses		1,466				292				75				11				1,844
Allowance build (release) for loan and lease losses		311				16				( 88		)		( 1		)		238
Other changes (1)		13				( 2		)		( 1		)		0				10
Balance as of September 30, 2017		5,534				1,213				669				2				7,418
Reserve for unfunded lending commitments:
Balance as of June 30, 2017		0				7				132				0				139
Provision (benefit) for losses on unfunded lending commitments		0				1				( 12		)		0				( 11		)
Balance as of September 30, 2017		0				8				120				0				128
Combined allowance and reserve as of September 30, 2017		$	5,534			$	1,221			$	789			$	2			$	7,546

		Nine Months Ended September 30, 2017
(Dollars in millions)		Credit Card				Consumer Banking				Commercial Banking				Other (3)				Total
Allowance for loan and lease losses:
Balance as of December 31, 2016		$	4,606			$	1,102			$	793			$	2			$	6,503
Charge-offs		( 4,644		)		( 1,189		)		( 334		)		( 36		)		( 6,203		)
Recoveries		962				463				12				32				1,469
Net charge-offs		( 3,682		)		( 726		)		( 322		)		( 4		)		( 4,734		)
Provision for loan and lease losses		4,580				839				210				4				5,633
Allowance build (release) for loan and lease losses		898				113				( 112		)		0				899
Other changes (1)		30				( 2		)		( 12		)		0				16
Balance as of September 30, 2017		5,534				1,213				669				2				7,418
Reserve for unfunded lending commitments:
Balance as of December 31, 2016		0				7				129				0				136
Provision (benefit) for losses on unfunded lending commitments		0				1				( 9		)		0				( 8		)
Balance as of September 30, 2017		0				8				120				0				128
Combined allowance and reserve as of September 30, 2017		$	5,534			$	1,221			$	789			$	2			$	7,546

__________

(1)	Represents foreign currency translation adjustments and the net impact of loan transfers and sales where applicable.

(2)	In the second quarter of 2018, we sold the substantial majority of our consumer home loan portfolio and the related servicing. We also transferred the remaining portfolio to loans held for sale as of June 30, 2018. The impact of these actions included a benefit for credit losses of $ 46 million which is reflected in the Other category.

⁽³⁾ Includes the legacy loan portfolio of our discontinued GreenPoint mortgage operations.

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Components of Allowance for Loan and Lease Losses by Impairment Methodology

The table below presents the components of our allowance for loan and lease losses by portfolio segment and impairment methodology as of September 30, 2018 and December 31, 2017 . See “Note 1—Summary of Significant Accounting Policies” in our 2017 Form 10-K for further discussion of allowance methodologies for each of the loan portfolios.

Table 5.2 : Components of Allowance for Loan and Lease Losses by Impairment Methodology

		September 30, 2018
(Dollars in millions)		Credit Card				Consumer Banking				Commercial Banking				Total
Allowance for loan and lease losses:
Collectively evaluated		$	5,235			$	1,011			$	571			$	6,817
Asset-specific		285				32				85				402
Total allowance for loan and lease losses		$	5,520			$	1,043			$	656			$	7,219
Loans held for investment:
Collectively evaluated		$	109,830			$	58,936			$	67,734			$	236,500
Asset-specific		855				388				655				1,898
PCI loans		0				5				358				363
Total loans held for investment		$	110,685			$	59,329			$	68,747			$	238,761
Allowance coverage ratio (1)		4.99		%		1.76		%		0.95		%		3.02		%

		December 31, 2017
(Dollars in millions)		Credit Card				Consumer Banking				Commercial Banking				Other				Total
Allowance for loan and lease losses:
Collectively evaluated		$	5,356			$	1,158			$	529			$	1			$	7,044
Asset-specific		292				53				76				0				421
PCI loans		0				31				6				0				37
Total allowance for loan and lease losses		$	5,648			$	1,242			$	611			$	1			$	7,502
Loans held for investment:
Collectively evaluated		$	113,948			$	64,080			$	63,237			$	58			$	241,323
Asset-specific		812				705				858				0				2,375
PCI loans		2				10,293				480				0				10,775
Total loans held for investment		$	114,762			$	75,078			$	64,575			$	58			$	254,473
Allowance coverage ratio (1)		4.92		%		1.65		%		0.95		%		1.72		%		2.95		%

__________

(1)	Allowance coverage ratio is calculated by dividing the period-end allowance for loan and lease losses by period-end loans held for investment within the specified loan category.

We have certain credit card partnership arrangements, that qualify for net accounting treatment, in which our partner agrees to share a portion of the credit losses. The expected reimbursements from these partners, which are netted against our allowance for loan and lease losses, result in reductions to net charge-offs and provision for credit losses. See “Note 1—Summary of Significant Accounting Policies” in our 2017 Form 10-K for further discussion of our card partnership agreements.

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The table below summarizes the changes in the estimated reimbursements from these partners for the three and nine months ended September 30, 2018 and 2017 .

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In the normal course of business, we enter into various types of transactions with entities that are considered to be variable interest entities (“VIEs”). Our primary involvement with VIEs has been related to our securitization transactions in which we transferred assets from our balance sheet to securitization trusts. We have primarily securitized credit card loans, which have provided a source of funding for us and enabled us to transfer a certain portion of the economic risk of the loans or related debt securities to third parties.

The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and is required to consolidate the VIE. The majority of the VIEs in which we are involved have been consolidated in our financial statements.

Summary of Consolidated and Unconsolidated VIEs

The assets of our consolidated VIEs primarily consist of cash, credit card loan receivables and the related allowance for loan and lease losses, which we report on our consolidated balance sheets under restricted cash for securitization investors, loans held in consolidated trusts and allowance for loan and lease losses, respectively. The assets of a particular VIE are the primary source of funding to settle its obligations. Creditors of these VIEs typically do not have recourse to our general credit. Liabilities primarily consist of debt securities issued by the VIEs, which we report under securitized debt obligations. For unconsolidated VIEs, we present the carrying amount of assets and liabilities reflected on our consolidated balance sheets and our maximum exposure to loss. Our maximum exposure to loss is estimated based on the unlikely event that all of the assets in the VIEs become worthless and we are required to meet our maximum remaining funding obligations.

The tables below present a summary of certain VIEs in which we had continuing involvement or held a variable interest, aggregated based on VIEs with similar characteristics as of September 30, 2018 and December 31, 2017 . We separately present information for consolidated and unconsolidated VIEs.

Table 6.1 : Carrying Amount of Consolidated and Unconsolidated VIEs

		September 30, 2018
		Consolidated								Unconsolidated
(Dollars in millions)		Carrying Amount of Assets				Carrying Amount of Liabilities				Carrying Amount of Assets				Carrying Amount of Liabilities				Maximum Exposure to Loss
Securitization-Related VIEs:
Credit card loan securitizations (1)		$	33,755			$	19,339			$	0			$	0			$	0
Home loan securitizations		0				0				237				101				601
Total securitization-related VIEs		33,755				19,339				237				101				601
Other VIEs: (2)
Affordable housing entities		233				11				4,071				1,260				4,071
Entities that provide capital to low-income and rural communities		1,763				122				0				0				0
Other		0				0				303				0				303
Total other VIEs		1,996				133				4,374				1,260				4,374
Total VIEs		$	35,751			$	19,472			$	4,611			$	1,361			$	4,975

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		December 31, 2017
		Consolidated								Unconsolidated
(Dollars in millions)		Carrying Amount of Assets				Carrying Amount of Liabilities				Carrying Amount of Assets				Carrying Amount of Liabilities				Maximum Exposure to Loss
Securitization-Related VIEs:
Credit card loan securitizations (1)		$	34,976			$	20,651			$	0			$	0			$	0
Home loan securitizations		0				0				455				390				1,057
Total securitization-related VIEs		34,976				20,651				455				390				1,057
Other VIEs: (2)
Affordable housing entities		226				10				4,175				1,284				4,175
Entities that provide capital to low-income and rural communities		1,498				129				0				0				0
Other		0				0				318				0				318
Total other VIEs		1,724				139				4,493				1,284				4,493
Total VIEs		$	36,700			$	20,790			$	4,948			$	1,674			$	5,550

__________

(1)	Represents the carrying amount of assets and liabilities owned by the VIE, which includes the seller’s interest and repurchased notes held by other related parties.

(2)

In certain investment structures, we consolidate a VIE which in turn holds as its primary asset an investment in an unconsolidated VIE. In these instances, we disclose the carrying amount of assets and liabilities on our consolidated balance sheets in the unconsolidated VIEs to avoid duplicating our exposure, as the unconsolidated VIEs are generally the operating entities generating the exposure. The carrying amount of assets and liabilities included in the unconsolidated VIE columns above related to these investment structures were $ 2.2 billion of assets and $ 879 million of liabilities as of September 30, 2018 and $ 2.2 billion of assets and $ 901 million of liabilities as of December 31, 2017 .

Securitization-Related VIEs

In a securitization transaction, assets are transferred to a trust, which generally meets the definition of a VIE. Our primary securitization activity is in the form of credit card securitizations, conducted through securitization trusts which we consolidate. Our continuing involvement in these securitization transactions mainly consists of acting as the primary servicer and holding certain retained interests.

We transfer multifamily commercial loans that we originate to the government-sponsored enterprises (“GSEs”) and retain the right to service the transferred loans pursuant to the guidelines set forth by the GSEs. Subsequent to such transfers, these loans are commonly securitized into CMBS by the GSEs. We also hold RMBS, CMBS and ABS in our investment securities portfolio, which represent an interest in the respective securitization trusts employed in the transactions under which those securities were issued. We do not consolidate the securitization trusts employed in these transactions as we do not have the power to direct the activities that most significantly impact the economic performance of these securitization trusts. We may have exposure associated with contractual obligations to repurchase previously transferred loans due to breaches of representations and warranties. See “ Note 14—Commitments, Contingencies, Guarantees and Others ” for more information related to our mortgage representation and warranty exposure. Our maximum exposure to loss as a result of our involvement with these VIEs is the carrying value of mortgage servicing rights (“MSRs”) and investment securities on our consolidated balance sheets. See “

Note 7—Goodwill and Intangible Assets ” for information related to our MSRs associated with these multifamily commercial loan securitizations and “

Note 3—Investment Securities ” for more information on the securities held in our investment securities portfolio. We exclude these VIEs from the tables within this note because we do not consider our continuing involvement with these VIEs to be significant; we either invest in securities issued by the VIE and were not involved in the design of the VIE or no transfers have occurred between the VIE and us. In addition, where we have certain lending arrangements in the normal course of business with entities that could be VIEs, we have also excluded these VIEs from the tables presented in this note. See “

Note 4—Loans ” for additional information regarding our lending arrangements in the normal course of business.

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The table below presents our continuing involvement in certain securitization-related VIEs as of September 30, 2018 and December 31, 2017 .

Table 6.2 : Continuing Involvement in Securitization-Related VIEs

						Mortgage
(Dollars in millions)		Credit Card				Option- ARM				GreenPoint HELOCs				GreenPoint Manufactured Housing
September 30, 2018:
Securities held by third-party investors		$	18,649			$	1,037			$	33			$	303
Receivables in the trust		33,965				1,072				26				305
Cash balance of spread or reserve accounts		0				8				N/A				109
Retained interests		Yes				Yes				Yes				Yes
Servicing retained		Yes				Yes				No				No
December 31, 2017:
Securities held by third-party investors		$	20,010			$	1,224			$	42			$	508
Receivables in the trust		35,667				1,266				35				511
Cash balance of spread or reserve accounts		0				8				N/A				116
Retained interests		Yes				Yes				Yes				Yes
Servicing retained		Yes				Yes				No				No

Credit Card Securitizations

We hold certain retained interests in our credit card securitizations and continue to service the receivables in these trusts. As of both September 30, 2018 and December 31, 2017 , we were deemed to be the primary beneficiary, and accordingly, all of these trusts have been consolidated in our financial statements.

Mortgage Securitizations

Option-ARM Loans

We had previously securitized option adjustable-rate mortgage (“option-ARM”) loans by transferring these loans to securitization trusts that had issued mortgage-backed securities to investors. The outstanding balance of debt securities held by third-party investors related to these mortgage loan securitization trusts was $ 1.0 billion and $ 1.2 billion as of September 30, 2018 and December 31, 2017 , respectively.

We continue to service a portion of the remaining mortgage loans in these securitizations. We also retain rights to future cash flows arising from these securitizations including interest-only bonds issued by the trusts. We generally estimate the fair value of these retained interests based on the estimated present value of expected future cash flows, using our best estimates of the key assumptions which include credit losses, prepayment speeds and discount rates commensurate with the risks involved. For the mortgage loans that we continue to service, we do not consolidate the related trusts because we do not have the right to receive benefits nor the obligation to absorb losses that could potentially be significant to the trusts. For the remaining trusts, for which we no longer service the underlying mortgage loans, we do not consolidate these entities since we do not have the power to direct the activities that most significantly impact the economic performance of the trusts.

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In connection with the securitization of certain option-ARM loans, a third party is obligated to advance a portion of any “negative amortization” resulting from monthly payments that are less than the interest accrued for that payment period. We have an agreement in place with the third party that mirrors this advance requirement. The amount advanced is tracked through mortgage-backed securities retained as part of the securitization transaction. As advances occur, we record an asset in the form of negative amortization bonds, which are held at fair value in other assets on our consolidated balance sheets. Our maximum exposure is affected by rate caps and monthly payment change caps, but the funding obligation cannot exceed the difference between the original loan balance multiplied by a preset negative amortization cap and the current unpaid principal balance. For the transactions where the negative amortization funding agreements have been terminated, incremental negative amortization is funded through the available cash flow in each transaction.

We have also entered into certain derivative contracts related to the securitization activities. These are classified as free-standing derivatives, with fair value adjustments recorded in non-interest income in our consolidated statements of income. See “ Note 9—Derivative Instruments and Hedging Activities ” for further details on these derivatives.

GreenPoint Mortgage Home Equity Lines of Credit (“HELOCs”)

Our discontinued wholesale mortgage banking unit, GreenPoint Mortgage Funding, Inc. (“GreenPoint”), previously sold HELOCs in whole loan sales that were subsequently securitized by third parties. GreenPoint acquired residual interests in certain of those securitization trusts. We do not consolidate these trusts because we either lack the power to direct the activities that most significantly impact the economic performance of the trusts or because we do not have the right to receive benefits or the obligation to absorb losses that could potentially be significant to the trusts. As the residual interest holder, GreenPoint is required to fund advances on the HELOCs when certain performance triggers are met due to deterioration in asset performance. On behalf of GreenPoint, we have funded cumulative advances of $ 30 million as of both September 30, 2018 and December 31, 2017 . We also have unfunded commitments of $ 3 million and $ 4 million related to those interests for our non-consolidated VIEs as of September 30, 2018 and December 31, 2017 , respectively.

GreenPoint Credit Manufactured Housing

We previously had certain retained interests and obligations related to the discontinued manufactured housing operations of GreenPoint Credit, LLC, a subsidiary of GreenPoint. Such discontinued operations, including the related recourse obligations, servicing rights and the primary obligation to execute clean-up calls in certain securitization transactions were sold to a third party in 2004. These securitization trusts were not consolidated because we did not have the power to direct the activities that most significantly impact the economic performance of the trusts as we did not service the loans.

The unpaid principal receivables balances of these manufactured housing securitization transactions were $ 305 million and $ 511 million as of September 30, 2018 and December 31, 2017 , respectively. In the fourth quarter of 2017, we entered into an agreement with the third-party servicer under which we assumed the obligation to exercise the remaining clean-up calls as they become due on certain securitization transactions, and a forward sale agreement pursuant to which we will sell the underlying loans to a third-party purchaser as the clean-up calls are exercised. Accordingly, we recognized loans held for sale and a corresponding liability on our consolidated balance sheets. We recorded $ 75 million and $ 283 million of these loan receivables, with the corresponding liability, which is included as a component of other debt, as of September 30, 2018 and December 31, 2017 , respectively.

We were required to fund letters of credit to cover losses on certain manufactured housing securitizations. We have the right to receive any funds remaining in the letters of credit after the securities are released. The fair value of these letters of credit are included in other assets on our consolidated balance sheets and totaled $ 75 million as of both September 30, 2018 and December 31, 2017 . We also have credit exposure on an agreement that we entered into to absorb a portion of the risk of loss on certain manufactured housing securitizations not subject to the funded letters of credit. Our expected future obligation under this agreement included in other liabilities on our consolidated balance sheets was $ 5 million and $ 10 million as of September 30, 2018 and December 31, 2017 , respectively.

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Other VIEs

Affordable Housing Entities

As part of our community reinvestment initiatives, we invest in private investment funds that make equity investments in multi-family affordable housing properties. We receive affordable housing tax credits for these investments. The activities of these entities are financed with a combination of invested equity capital and debt. We account for certain of our investments in qualified affordable housing projects using the proportional amortization method if certain criteria are met. The proportional amortization method amortizes the cost of the investment over the period in which the investor expects to receive tax credits and other tax benefits, and the resulting amortization is recognized as a component of income tax expense attributable to continuing operations. For the nine months ended September 30, 2018 and 2017 , we recognized amortization of $ 365 million and $ 347 million , respectively, and tax credits of $ 468 million and $ 388 million , respectively, associated with these investments within income tax provision. The carrying value of our equity investments in these qualified affordable housing projects was $ 4.0 billion and $ 3.9 billion as of September 30, 2018 and December 31, 2017 , respectively. We are periodically required to provide additional financial or other support during the period of the investments. Our liability for these unfunded commitments was $ 1.4 billion as of both September 30, 2018 and December 31, 2017 . Predominantly all of this liability is expected to be paid from 2018 to 2020 .

For those investment funds considered to be VIEs, we are not required to consolidate them if we do not have the power to direct the activities that most significantly impact the economic performance of those entities. We record our interests in these unconsolidated VIEs in loans held for investment, other assets and other liabilities on our consolidated balance sheets. Our maximum exposure to these entities is limited to our variable interests in the entities which consisted of assets of approximately $ 4.1 billion and $ 4.2 billion as of September 30, 2018 and December 31, 2017 , respectively. The creditors of the VIEs have no recourse to our general credit and we do not provide additional financial or other support other than during the period that we are contractually required to provide it. The total assets of the unconsolidated VIE investment funds were approximately $ 11.0 billion and $ 11.5 billion as of September 30, 2018 and December 31, 2017 , respectively.

Entities that Provide Capital to Low-Income and Rural Communities

We hold variable interests in entities (“Investor Entities”) that invest in community development entities (“CDEs”) that provide debt financing to businesses and non-profit entities in low-income and rural communities. Variable interests in the CDEs held by the consolidated Investor Entities are also our variable interests. The activities of the Investor Entities are financed with a combination of invested equity capital and debt. The activities of the CDEs are financed solely with invested equity capital. We receive federal and state tax credits for these investments. We consolidate the VIEs in which we have the power to direct the activities that most significantly impact the VIE’s economic performance and where we have the obligation to absorb losses or right to receive benefits that could be potentially significant to the VIE. We have also consolidated other investments and CDEs that are not considered to be VIEs, but where we hold a controlling financial interest. The assets of the VIEs that we consolidated, which totaled approximately $ 1.8 billion and $ 1.5 billion as of September 30, 2018 and December 31, 2017 , respectively, are reflected on our consolidated balance sheets in cash, loans held for investment and other assets. The liabilities are reflected in other liabilities. The creditors of the VIEs have no recourse to our general credit. We have not provided additional financial or other support other than during the period that we are contractually required to provide it.

Other

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The table below presents our goodwill, intangible assets and MSRs as of September 30, 2018 and December 31, 2017 . Goodwill is presented separately, while intangible assets and MSRs are included in other assets on our consolidated balance sheets.

Table 7.1 : Components of Goodwill, Intangible Assets and MSRs

		September 30, 2018
(Dollars in millions)		Carrying Amount of Assets				Accumulated Amortization				Net Carrying Amount
Goodwill		$	14,513			N/A				$	14,513
Intangible assets:
Purchased credit card relationship (“PCCR”) intangibles		2,086				$	( 1,920	)		166
Core deposit intangibles		1,149				( 1,145		)		4
Other (1)		280				( 161		)		119
Total intangible assets		3,515				( 3,226		)		289
Total goodwill and intangible assets		$	18,028			$	( 3,226	)		$	14,802
Commercial MSRs (2)		$	431			$	( 166	)		$	265
		December 31, 2017
(Dollars in millions)		Carrying Amount of Assets				Accumulated Amortization				Net Carrying Amount
Goodwill		$	14,533			N/A				$	14,533
Intangible assets:
PCCR intangibles		2,105				$	( 1,844	)		261
Core deposit intangibles		1,149				( 1,133		)		16
Other (1)		300				( 156		)		144
Total intangible assets		3,554				( 3,133		)		421
Total goodwill and intangible assets		$	18,087			$	( 3,133	)		$	14,954
MSRs:
Consumer MSRs (3)		$	92			N/A				$	92
Commercial MSRs (2)		355				$	( 126	)		229
Total MSRs		$	447			$	( 126	)		$	321

__________

(1)	Primarily consists of intangibles for sponsorship relationships, brokerage relationship intangibles, partnership and other contract intangibles and trade name intangibles.

(2)	Commercial MSRs are accounted for under the amortization method on our consolidated balance sheets.

(3)	Consumer MSRs were carried at fair value on our consolidated balance sheets as of December 31, 2017. In the first quarter of 2018, we sold the substantial majority of these MSRs.

Amortization expense for amortizable intangible assets, which is presented separately in our consolidated statements of income, totaled $ 44 million and $ 131 million for the three and nine months ended September 30, 2018 , respectively, and $ 61 million and $ 184 million for the three and nine months ended September 30, 2017 , respectively.

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Goodwill

The following table presents changes in the carrying amount of goodwill as well as goodwill attributable to each of our business segments as of September 30, 2018 and December 31, 2017 .

Table 7.2 : Goodwill Attributable to Business Segments

(Dollars in millions)		Credit Card				Consumer Banking				Commercial Banking				Total
Balance as of December 31, 2017		$	5,032			$	4,600			$	4,901			$	14,533
Reductions in goodwill related to divestitures		0				0				( 17		)		( 17		)
Other adjustments (1)		( 3		)		0				0				( 3		)
Balance as of September 30, 2018		$	5,029			$	4,600			$	4,884			$	14,513

__________

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Our deposits, which are our largest source of funding for our assets and operations, consist of non-interest-bearing and interest-bearing deposits, which include checking accounts, money market deposit accounts, negotiable order of withdrawals, savings deposits and time deposits.

We use a variety of other funding sources including short-term borrowings, senior and subordinated notes, securitized debt obligations and other borrowings. In addition, we utilize FHLB advances, which are secured by certain portions of our loan and investment securities portfolios. Securitized debt obligations are presented separately on our consolidated balance sheets, as they represent obligations of consolidated securitization trusts, while federal funds purchased and securities loaned or sold under agreements to repurchase, senior and subordinated notes and other borrowings, including FHLB advances, are included in other debt on our consolidated balance sheets.

The following tables summarize the components of our deposits, short-term borrowings and long-term debt as of September 30, 2018 and December 31, 2017 . Our total short-term borrowings consist of federal funds purchased, securities loaned or sold under agreements to repurchase, and short-term FHLB advances. Our long-term debt consists of borrowings with an original contractual maturity of greater than one year. The carrying value presented below for these borrowings include unamortized debt premiums and discounts, net of debt issuance costs and fair value hedge accounting adjustments.

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Table 8.1 : Components of Deposits, Short-Term Borrowings and Long-Term Debt

(Dollars in millions)		September 30, 2018				December 31, 2017
Deposits:
Non-interest-bearing deposits		$	24,839			$	26,404
Interest-bearing deposits (1)		222,356				217,298
Total deposits (2)		$	247,195			$	243,702
Short-term borrowings:
Federal funds purchased and securities loaned or sold under agreements to repurchase		$	384			$	576
FHLB advances		1,250				0
Total short-term borrowings		$	1,634			$	576

		September 30, 2018											December 31, 2017
(Dollars in millions)		Maturity Dates		Stated Interest Rates		Weighted- Average Interest Rate			Carrying Value				Carrying Value
Long-term debt:
Securitized debt obligations		2018-2025		1.33 - 3.01%		2.19	%		$	18,649			$	20,010
Senior and subordinated notes:
Fixed unsecured senior debt		2018-2028		1.85 - 4.75		3.01			23,531				22,776
Floating unsecured senior debt		2019-2023		2.74 - 3.49		3.11			3,347				3,446
Total unsecured senior debt						3.02			26,878				26,222
Fixed unsecured subordinated debt		2019-2026		3.38 - 8.80		4.09			4,413				4,533
Total senior and subordinated notes									31,291				30,755
Other long-term borrowings:
FHLB advances		2018-2023		2.15 - 5.36		2.16			501				8,609
Other borrowings		2018-2035		1.00 - 17.50		6.77			130				331
Total other long-term borrowings									631				8,940
Total long-term debt									$	50,571			$	59,705
Total short-term borrowings and long-term debt									$	52,205			$	60,281

__________

(1)	Includes $ 3.4 billion and $ 1.3 billion of time deposits in denominations in excess of the $250,000 federal insurance limit as of September 30, 2018 and December 31, 2017 , respectively.

(2)	Includes approximately $ 1.5 billion of held for sale deposits as of September 30, 2018 associated with the anticipated sale of our online retail brokerage business.

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Use of Derivatives

We manage asset and liability positions and market risk exposure in accordance with market risk management policies that are approved by our Board of Directors. Our primary market risks stem from the impact on our earnings and economic value of equity from changes in interest rates and, to a lesser extent, changes in foreign exchange rates. We employ several techniques to manage our interest rate sensitivity, which include changing the duration and re-pricing characteristics of various assets and liabilities by using interest rate derivatives. Our current policies also include the use of derivatives to hedge exposures denominated in foreign currency which we use to limit our earnings and capital ratio exposures to foreign exchange risk. In addition to interest rate and foreign currency swaps, we may also use a variety of other derivative instruments, including caps, floors, options, futures and forward contracts, to manage our interest rate and foreign exchange risks. We also offer various interest rate, commodity and foreign exchange derivatives as an accommodation to our customers within our Commercial Banking business, and offset the majority of such exposure through derivative transactions with other counterparties. We execute our derivative contracts in both over-the-counter (“OTC”) and exchange-traded derivative markets. Under the Dodd-Frank Act, we are required to clear eligible derivative transactions through Central Counterparty Clearinghouses (“CCPs”) such as the Chicago Mercantile Exchange (“CME”) and London Clearing House (“LCH”), which are often referred to as “central clearinghouses.”

Derivatives Counterparty Credit Risk

Derivative instruments contain an element of credit risk that arises from the potential failure of a counterparty to perform according to the terms of the contract. Our exposure to derivative counterparty credit risk, at any point in time, is equal to the amount reported as a derivative asset on our balance sheet, assuming no recoveries of underlying collateral.

We clear certain OTC derivatives with central clearinghouses through futures commission merchants (“FCMs”) as part of the regulatory requirement. The use of the CCPs and the FCMs reduces our bilateral counterparty credit exposures while it increases our credit exposures to CCPs and FCMs. We are required by CCPs to post initial and variation margin to mitigate the risk of non-payment through our FCMs. Our FCM agreements governing these derivative transactions generally include provisions that may require us to post more collateral or otherwise change terms in our agreements under certain circumstances. For CME-cleared OTC derivatives, we characterize variation margin cash payments as settlements. Effective January 16, 2018, LCH amended its rulebook to legally characterize variation margin payments as settlements. We adopted this rule change in the first quarter of 2018. As a result, the balances for LCH-cleared derivatives are reduced to reflect the settlement of these positions.

We also enter into legally enforceable master netting agreements and collateral agreements, where possible, with certain derivative counterparties to mitigate the risk of default on a bilateral basis. These bilateral agreements typically provide the right to offset exposures and require one counterparty to post collateral on derivative instruments in a net liability position to the other counterparty. Certain of these bilateral agreements include provisions requiring that our debt maintain a credit rating of investment grade or above by each of the major credit rating agencies. In the event of a downgrade of our debt credit rating below investment grade, some of our counterparties would have the right to terminate the derivative contract and close out the existing positions.

We record counterparty credit risk valuation adjustments (“CVAs”) on our derivative contracts to properly reflect the credit quality of the counterparty. We consider collateral and legally enforceable master netting agreements that mitigate our credit exposure to each counterparty in determining the counterparty credit risk valuation adjustment, which may be adjusted in future periods due to changes in the fair value of the derivative contracts, collateral and creditworthiness of the counterparty. We also record debit valuation adjustments (“DVAs”) to adjust the fair value of our derivative liabilities to reflect the impact of our own credit quality. We calculate this adjustment by comparing the spreads on our credit default swaps to the discount benchmark curve.

Accounting for Derivatives

Our derivatives are designated as either qualifying accounting hedges or free-standing derivatives. Qualifying accounting hedges are designated as fair value hedges, cash flow hedges or net investment hedges. Free-standing derivatives primarily consist of customer accommodation derivatives and economic hedges that do not qualify for hedge accounting.

•	Fair Value Hedges: We designate derivatives as fair value hedges when they are used to manage our exposure to changes in the fair value of certain financial assets and liabilities, which fluctuate in value as a result of movements in interest rates. Changes in the fair value of derivatives designated as fair value hedges are recorded and presented in the same line item as

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the earnings effect of the hedged item on our consolidated statements of income. Our fair value hedges consist of interest rate swaps that are intended to modify our exposure to interest rate risk on various fixed-rate assets and liabilities.

•

Cash Flow Hedges: We designate derivatives as cash flow hedges when they are used to manage our exposure to variability in cash flows related to forecasted transactions. Changes in the fair value of derivatives designated as cash flow hedges are recorded as a component of AOCI. Those amounts are reclassified into earnings in the same period or periods during which the forecasted transactions impact earnings and are presented in the same line item on our consolidated statements of income as the earnings effect of the hedged items. Our cash flow hedges use interest rate swaps and floors that are intended to hedge the variability in interest receipts or interest payments on some of our variable-rate assets or liabilities. We also enter into foreign currency forward derivative contracts to hedge our exposure to variability in cash flows related to intercompany borrowings denominated in a foreign currency.

•

Net Investment Hedges: We use net investment hedges to manage the foreign currency exposure related to our net investments in foreign operations that have functional currencies other than the U.S. dollar. Changes in the fair value of net investment hedges are recorded in the translation adjustment component of AOCI, offsetting the translation gain or loss from those foreign operations. We execute net investment hedges using foreign exchange forward contracts to hedge the translation exposure of the net investment in our foreign operations under the forward method.

•

Free-Standing Derivatives: Our free-standing derivatives primarily consist of our customer accommodation derivatives and other economic hedges. The customer accommodation derivatives and the related offsetting contracts are mainly interest rate and commodity contracts. We use derivatives to economically hedge the risk of changes in the fair value of mortgage loan origination and purchase commitments as well as other interests held. Changes in the fair value of free-standing derivatives are recorded in earnings as a component of other non-interest income.

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Balance Sheet Presentation

The following table summarizes the notional and fair values of our derivative instruments as of September 30, 2018 and December 31, 2017 , which are segregated by derivatives that are designated as accounting hedges and those that are not, and are further segregated by type of contract within those two categories. The total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and any associated cash collateral received or pledged. Derivative assets and liabilities are included in other assets and other liabilities, respectively, on our consolidated balance sheets.

Table 9.1 : Derivative Assets and Liabilities at Fair Value

		September 30, 2018												December 31, 2017
		Notional or Contractual Amount				Derivative (1)(4)								Notional or Contractual Amount				Derivative (1)
(Dollars in millions)						Assets				Liabilities								Assets				Liabilities
Derivatives designated as accounting hedges:
Interest rate contracts:
Fair value hedges		$	59,615			$	48			$	16			$	56,604			$	102			$	164
Cash flow hedges		76,650				11				108				77,300				30				125
Total interest rate contracts		136,265				59				124				133,904				132				289
Foreign exchange contracts:
Cash flow hedges		5,800				50				41				6,086				19				75
Net investment hedges		2,559				104				3				3,036				1				164
Total foreign exchange contracts		8,359				154				44				9,122				20				239
Total derivatives designated as accounting hedges		144,624				213				168				143,026				152				528
Derivatives not designated as accounting hedges:
Customer accommodation:
Interest rate contracts		48,205				131				437				39,429				316				221
Commodity contracts		10,129				1,048				1,031				8,111				518				496
Foreign exchange and other contracts		1,565				14				12				980				14				10
Total customer accommodation		59,899				1,193				1,480				48,520				848				727
Other interest rate exposures (2)		6,744				35				10				3,857				40				8
Other contracts		1,252				0				11				1,209				0				5
Total derivatives not designated as accounting hedges		67,895				1,228				1,501				53,586				888				740
Total derivatives		$	212,519			$	1,441			$	1,669			$	196,612			$	1,040			$	1,268
Less: netting adjustment (3)						( 436		)		( 990		)						( 275		)		( 662		)
Total derivative assets/liabilities						$	1,005			$	679							$	765			$	606

__________

(1)	Derivative assets and liabilities presented above exclude valuation adjustments related to non-performance risk. As of September 30, 2018 and December 31, 2017 , the cumulative CVA balances were $ 5 million and $ 2 million , respectively, and the cumulative DVA balances were less than $ 1 million as of both September 30, 2018 and December 31, 2017 .

(2)	Other interest rate exposures include mortgage-related derivatives, interest rate swaps and to-be-announced derivatives.

(3)	Represents balance sheet netting of derivative assets and liabilities, and related payables and receivables for cash collateral held or placed with the same counterparty.

(4)	Reflects a reduction in derivative assets of $ 640 million and a reduction in derivative liabilities of $ 724 million on our consolidated balance sheets as a result of adopting the LCH variation margin rule change in the first quarter of 2018.

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The following table summarizes the carrying value of our hedged assets and liabilities in fair value hedges and the associated cumulative basis adjustments included in those carrying values as of September 30, 2018 .

Table 9.2 : Hedged Items in Fair Value Hedging Relationships

		September 30, 2018
		Carrying Amount Assets/(Liabilities)				Cumulative Amount of Basis Adjustments Included in the Carrying Amount
(Dollars in millions)						Total Assets/(Liabilities)				Discontinued-Hedging Relationships
Line item on our consolidated balance sheets in which the hedged item is included:
Investment securities available for sale (1)(2)		$	15,653			$	( 246	)		$	( 2	)
Interest-bearing deposits		( 13,436		)		398				0
Securitized debt obligations		( 7,130		)		248				109
Senior and subordinated notes		( 27,170		)		802				393

__________

(1)

These amounts include the amortized cost basis of our investment securities designated in hedging relationships for which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. As of September 30, 2018 , the amortized cost basis of this portfolio was $ 10.1 billion , the amount of the designated hedged items was $ 4.4 billion , and the cumulative basis adjustment associated with these hedges was $ 59 million .

(2)	Carrying value represents amortized cost.

Offsetting of Financial Assets and Liabilities

Derivative contracts and repurchase agreements that we execute bilaterally in the OTC market are governed by enforceable master netting arrangements where we generally have the right to offset exposure with the same counterparty. Either counterparty can generally request to net settle all contracts through a single payment upon default on, or termination of, any one contract. We elect to offset the derivative assets and liabilities under netting arrangements for balance sheet presentation where a right of setoff exists. For derivative contracts entered into under master netting arrangements for which we have not been able to confirm the enforceability of the setoff rights, or those not subject to master netting arrangements, we do not offset our derivative positions for balance sheet presentation.

We also maintain collateral agreements with certain derivative counterparties. For bilateral derivatives, we review our collateral positions on a daily basis and exchange collateral with our counterparties in accordance with standard International Swaps and Derivatives Association documentation and other related agreements. Agreements with certain bilateral counterparties require both parties to maintain collateral in the event the fair values of derivative instruments exceed established exposure thresholds. For centrally cleared derivatives, we are subject to initial margin posting and daily variation margin settlement with the central clearinghouses. Acceptable types of collateral are typically in the form of cash or high quality liquid securities.

The exchange of collateral is dependent upon the fair value of the derivative instruments as well as the fair value of the pledged collateral. When valuing collateral, an estimate of the variation in price and liquidity over time is subtracted in the form of a “haircut” to discount the value of the collateral pledged.

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The following table presents as of September 30, 2018 and December 31, 2017 the gross and net fair values of our derivative assets and liabilities and repurchase agreements, as well as the related offsetting amounts permitted under U.S. GAAP. The table also includes cash and non-cash collateral received or pledged associated with such arrangements. The collateral amounts shown are limited to the extent of the related net derivative fair values or outstanding balances, thus instances of over-collateralization are not shown.

Table 9.3 : Offsetting of Financial Assets and Financial Liabilities

		Gross Amounts				Gross Amounts Offset in the Balance Sheet								Net Amounts as Recognized				Securities Collateral Held Under Master Netting Agreements
(Dollars in millions)						Financial Instruments				Cash Collateral Received												Net Exposure
As of September 30, 2018
Derivative assets (1)(2)		$	1,441			$	( 230	)		$	( 206	)		$	1,005			$	0			$	1,005
As of December 31, 2017
Derivative assets (1)		1,040				( 202		)		( 73		)		765				0				765

		Gross Amounts				Gross Amounts Offset in the Balance Sheet								Net Amounts as Recognized				Securities Collateral Pledged Under Master Netting Agreements
(Dollars in millions)						Financial Instruments				Cash Collateral Pledged												Net Exposure
As of September 30, 2018
Derivative liabilities (1)(2)		$	1,669			$	( 230	)		$	( 760	)		$	679			$	0			$	679
Repurchase agreements (3)		384				0				0				384				( 384		)		0
As of December 31, 2017
Derivative liabilities (1)		1,268				( 202		)		( 460		)		606				0				606
Repurchase agreements		576				0				0				576				( 576		)		0

__________

(1)

We received cash collateral from derivative counterparties totaling $ 242 million and $ 91 million as of September 30, 2018 and December 31, 2017 , respectively. We also received securities from derivative counterparties with a fair value of $ 1 million as of both September 30, 2018 and December 31, 2017 , respectively, which we have the ability to re-pledge. We posted $ 1.3 billion and $ 966 million of cash collateral as of September 30, 2018 and December 31, 2017 , respectively.

(2)	Reflects a reduction in derivative assets of $ 640 million and a reduction in derivative liabilities of $ 724 million on our consolidated balance sheets as a result of adopting the LCH variation margin rule change in the first quarter of 2018.

(3)	Represents customer repurchase agreements that mature the next business day. As of September 30, 2018 , we pledged collateral with a fair value of $ 392 million under these customer repurchase agreements, which were primarily agency RMBS securities.

Income Statement and AOCI Presentation

Fair Value and Cash Flow Hedges

The net gains (losses) recognized in our consolidated statements of income related to derivatives in fair value and cash flow hedging relationships are presented below for the three and nine months ended September 30, 2018 and 2017 . Prior period amounts were not reclassified to conform to the current period presentation.

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Table 9.4 : Effects of Fair Value and Cash Flow Hedge Accounting

		Three Months Ended September 30, 2018
		Net Interest Income																								Non-Interest Income
(Dollars in millions)		Investment Securities				Loans, Including Loans Held for Sale				Other				Deposits				Securitized Debt Obligations				Senior and Subordinated Notes				Other
Total amounts presented in our consolidated statements of income		$	593			$	6,247			$	55			$	( 681	)		$	( 127	)		$	( 288	)		$	248
Fair value hedging relationships:
Interest rate contracts:
Interest recognized on derivatives		( 5		)		0				0				( 25		)		( 21		)		( 8		)		0
Gains (losses) recognized on derivatives		77				0				0				( 14		)		( 4		)		( 148		)		0
Gains (losses) recognized on hedged items (1)		( 79		)		0				0				16				5				136				0
Net income (expense) recognized on fair value hedges		( 7		)		0				0				( 23		)		( 20		)		( 20		)		0
Cash flow hedging relationships: (2)
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income		( 5		)		( 31		)		0				0				0				0				0
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income		0				0				14				0				0				0				0
Net income (expense) recognized on cash flow hedges		$	( 5	)		$	( 31	)		$	14			$	0			$	0			$	0			$	0

		Nine Months Ended September 30, 2018
		Net Interest Income																								Non-Interest Income
(Dollars in millions)		Investment Securities				Loans, Including Loans Held for Sale				Other				Deposits				Securitized Debt Obligations				Senior and Subordinated Notes				Other
Total amounts presented in our consolidated statements of income		$	1,584			$	18,370			$	174			$	( 1,842	)		$	( 358	)		$	( 828	)		$	884
Fair value hedging relationships:
Interest rate contracts:
Interest recognized on derivatives		( 22		)		0				0				( 48		)		( 44		)		6				0
Gains (losses) recognized on derivatives		260				0				0				( 211		)		( 122		)		( 659		)		0
Gains (losses) recognized on hedged items (1)		( 259		)		0				0				203				118				610				0
Net income (expense) recognized on fair value hedges		( 21		)		0				0				( 56		)		( 48		)		( 43		)		0
Cash flow hedging relationships: (2)
Interest rate contracts:
Realized gains (losses) reclassified from AOCI into net income		( 9		)		( 40		)		0				0				0				0				0
Foreign exchange contracts:
Realized gains (losses) reclassified from AOCI into net income		0				0				33				0				0				0				( 1		)
Net income (expense) recognized on cash flow hedges		$	( 9	)		$	( 40	)		$	33			$	0			$	0			$	0			$	( 1	)

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_________

(1)	Includes amortization expense of $ 19 million and $ 25 million for the three and nine months ended September 30, 2018 , respectively, related to basis adjustments of the discontinued hedges.

(2)	See “ Note 10—Stockholders’ Equity ” for the effects of cash flow and net investment hedges on AOCI and amounts reclassified to net income, net of tax.

(Dollars in millions)		Three Months Ended September 30, 2017				Nine Months Ended September 30, 2017
Derivatives designated as fair value hedges:
Fair value interest rate contracts:
Gains (losses) recognized in net income on derivatives		$	( 23	)		$	70
Gains (losses) recognized in net income on hedged items		19				( 74		)
Net fair value hedge ineffectiveness gains (losses)		( 4		)		( 4		)
Derivatives designated as cash flow hedges:
Gains (losses) reclassified from AOCI into net income:
Interest rate contracts		15				76
Foreign exchange contracts		5				13
Subtotal		20				89
Gains (losses) recognized in net income due to ineffectiveness:
Interest rate contracts		0				3
Net derivative gains (losses) recognized in net income		$	20			$	92

In the next 12 months, we expect to reclassify to earnings net after-tax losses of $ 200 million recorded in AOCI as of September 30, 2018 . These amounts will offset the cash flows associated with the hedged forecasted transactions. The maximum length of time over which forecasted transactions were hedged was approximately 5 years as of September 30, 2018 . The amount we expect to reclassify into earnings may change as a result of changes in market conditions and ongoing actions taken as part of our overall risk management strategy.

Free-Standing Derivatives

The net impacts to our consolidated statements of income related to free-standing derivatives are presented below for the three and nine months ended September 30, 2018 and 2017 . These gains or losses are recognized in other non-interest income on our consolidated statements of income.

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Preferred Stock

The following table summarizes the Company’s preferred stock issued and outstanding as of September 30, 2018 and December 31, 2017 .

Table 10.1 : Preferred Stock Issued and Outstanding ⁽¹⁾

						Redeemable by Issuer Beginning		Per Annum Dividend Rate			Dividend Frequency		Liquidation Preference per Share							Carrying Value (in millions)
Series		Description		Issuance Date													Total Shares Outstanding			September 30, 2018				December 31, 2017
Series B		6.00% Non-Cumulative		August 20, 2012		September 1, 2017		6.00	%		Quarterly		$	1,000			875,000			$	853			$	853
Series C		6.25% Non-Cumulative		June 12, 2014		September 1, 2019		6.25			Quarterly		1,000				500,000			484				484
Series D		6.70% Non-Cumulative		October 31, 2014		December 1, 2019		6.70			Quarterly		1,000				500,000			485				485
Series E		Fixed-to-Floating Rate Non-Cumulative		May 14, 2015		June 1, 2020		5.55% through 5/31/2020; 3-mo. LIBOR+ 380 bps thereafter			Semi-Annually through 5/31/2020; Quarterly thereafter		1,000				1,000,000			988				988
Series F		6.20% Non-Cumulative		August 24, 2015		December 1, 2020		6.20			Quarterly		1,000				500,000			484				484
Series G		5.20% Non-Cumulative		July 29, 2016		December 1, 2021		5.20			Quarterly		1,000				600,000			583				583
Series H		6.00% Non-Cumulative		November 29, 2016		December 1, 2021		6.00			Quarterly		1,000				500,000			483				483
Total																				$	4,360			$	4,360

__________

(1)	Except for Series E, ownership is held in the form of depositary shares, each representing a 1/40th interest in a share of fixed-rate non-cumulative perpetual preferred stock.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income primarily consists of accumulated net unrealized gains or losses associated with available for sale securities, the changes in fair value of derivatives designated as cash flow hedges, unrealized gains and losses on securities held to maturity on the transfer date from the available for sale category and foreign currency translation adjustments. Unrealized gains and losses for securities held to maturity are amortized over the remaining life of the security with no expected impact on future net income as amortization of these gains or losses will be offset by the amortization of premium or discount created from the transfer of securities from available for sale to held to maturity.

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The following table includes the AOCI impacts from the adoption of accounting standards and the changes in AOCI by component for the three and nine months ended September 30, 2018 and 2017 . See “

Note 1—Summary of Significant Accounting Policies ” for more information.

Table 10.2 : Accumulated Other Comprehensive Income

		Three Months Ended September 30, 2018
(Dollars in millions)		Securities Available for Sale				Securities Held to Maturity				Cash Flow Hedges				Foreign Currency Translation Adjustments (1)				Other				Total
AOCI as of June 30, 2018		$	( 630	)		$	( 204	)		$	( 775	)		$	( 155	)		$	( 29	)		$	( 1,793	)
Other comprehensive income (loss) before reclassifications		( 172		)		0				( 99		)		13				( 1		)		( 259		)
Amounts reclassified from AOCI into earnings		149				8				18				0				0				175
Net other comprehensive income (loss)		( 23		)		8				( 81		)		13				( 1		)		( 84		)
AOCI as of September 30, 2018		$	( 653	)		$	( 196	)		$	( 856	)		$	( 142	)		$	( 30	)		$	( 1,877	)

		Nine Months Ended September 30, 2018
(Dollars in millions)		Securities Available for Sale				Securities Held to Maturity				Cash Flow Hedges				Foreign Currency Translation Adjustments (1)				Other				Total
AOCI as of December 31, 2017		$	17			$	( 524	)		$	( 281	)		$	( 138	)		$	0			$	( 926	)
Cumulative effects from adoption of new accounting standards		3				( 113		)		( 63		)		0				( 28		)		( 201		)
Transfer of securities held to maturity to available for sale (2)		( 325		)		407				0				0				0				82
Other comprehensive loss before reclassifications		( 491		)		0				( 525		)		( 4		)		0				( 1,020		)
Amounts reclassified from AOCI into earnings		143				34				13				0				( 2		)		188
Net other comprehensive income (loss)		( 673		)		441				( 512		)		( 4		)		( 2		)		( 750		)
AOCI as of September 30, 2018		$	( 653	)		$	( 196	)		$	( 856	)		$	( 142	)		$	( 30	)		$	( 1,877	)

		Three Months Ended September 30, 2017
(Dollars in millions)		Securities Available for Sale				Securities Held to Maturity				Cash Flow Hedges				Foreign Currency Translation Adjustments (1)				Other				Total
AOCI as of June 30, 2017		$	181			$	( 575	)		$	( 99	)		$	( 174	)		$	( 16	)		$	( 683	)
Other comprehensive income before reclassifications		52				0				3				38				5				98
Amounts reclassified from AOCI into earnings		( 42		)		26				( 20		)		0				( 1		)		( 37		)
Net other comprehensive income (loss)		10				26				( 17		)		38				4				61
AOCI as of September 30, 2017		$	191			$	( 549	)		$	( 116	)		$	( 136	)		$	( 12	)		$	( 622	)

		Nine Months Ended September 30, 2017
(Dollars in millions)		Securities Available for Sale				Securities Held to Maturity				Cash Flow Hedges				Foreign Currency Translation Adjustments (1)				Other				Total
AOCI as of December 31, 2016		$	( 4	)		$	( 621	)		$	( 78	)		$	( 222	)		$	( 24	)		$	( 949	)
Other comprehensive income before reclassifications		235				0				51				86				16				388
Amounts reclassified from AOCI into earnings		( 40		)		72				( 89		)		0				( 4		)		( 61		)
Net other comprehensive income (loss)		195				72				( 38		)		86				12				327
AOCI as of September 30, 2017		$	191			$	( 549	)		$	( 116	)		$	( 136	)		$	( 12	)		$	( 622	)

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__________

(1)	Includes other comprehensive gain of $ 28 million and loss of $ 49 million for the three months ended September 30, 2018 and 2017 , respectively, and other comprehensive gain of $ 91 million and loss of $ 129 million for the nine months ended September 30, 2018 and 2017 , respectively, from hedging instruments designated as net investment hedges.

(2)	In the first quarter of 2018, we made a one-time transfer of held to maturity securities with a carrying value of $ 9.0 billion to available for sale as a result of our adoption of ASU No. 2017-12. This transfer resulted in an after-tax gain of $ 82 million ( $ 107 million pre-tax) to AOCI.

The following table presents the impacts on net income of amounts reclassified from each component of AOCI for the three and nine months ended September 30, 2018 and 2017 .

Table 10.3 : Reclassifications from AOCI

				Amount Reclassified from AOCI
(Dollars in millions)				Three Months Ended September 30,								Nine Months Ended September 30,
AOCI Components		Affected Income Statement Line Item		2018				2017				2018				2017
Securities available for sale:
		Non-interest income		$	( 196	)		$	68			$	( 188	)		$	64
		Income tax provision (benefit)		( 47		)		26				( 45		)		24
		Net income/(loss)		( 149		)		42				( 143		)		40
Securities held to maturity: (1)
		Interest income		( 10		)		( 40		)		( 44		)		( 113		)
		Income tax benefit		( 2		)		( 14		)		( 10		)		( 41		)
		Net loss		( 8		)		( 26		)		( 34		)		( 72		)
Cash flow hedges:
Interest rate contracts:		Interest income		( 36		)		25				( 49		)		122
Foreign exchange contracts:		Interest income		13				6				33				19
		Non-interest income		0				1				( 1		)		1
		Income (loss) from continuing operations before income taxes		( 23		)		32				( 17		)		142
		Income tax provision (benefit)		( 5		)		12				( 4		)		53
		Net income/(loss)		( 18		)		20				( 13		)		89
Other:
		Non-interest income and non-interest expense		1				3				3				7
		Income tax provision		1				2				1				3
		Net income		0				1				2				4
Total reclassifications				$	( 175	)		$	37			$	( 188	)		$	61

__________

(1)

The amortization of unrealized holding gains or losses reported in AOCI for securities held to maturity will be offset by the amortization of premium or discount created from the transfer of securities from available for sale to held to maturity, which occurred at fair value. These unrealized gains or losses will be amortized over the remaining life of the security with no expected impact on future net income.

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The table below summarizes other comprehensive income activity and the related tax impact for the three and nine months ended September 30, 2018 and 2017 .

Table 10.4 : Other Comprehensive Income (Loss)

		Three Months Ended September 30,
		2018												2017
(Dollars in millions)		Before Tax				Provision (Benefit)				After Tax				Before Tax				Provision (Benefit)				After Tax
Other comprehensive income (loss):
Net unrealized gains (losses) on securities available for sale		$	( 31	)		$	( 8	)		$	( 23	)		$	16			$	6			$	10
Net changes in securities held to maturity		10				2				8				40				14				26
Net unrealized losses on cash flow hedges		( 107		)		( 26		)		( 81		)		( 29		)		( 12		)		( 17		)
Foreign currency translation adjustments (1)		22				9				13				11				( 27		)		38
Other		( 1		)		0				( 1		)		7				3				4
Other comprehensive income (loss)		$	( 107	)		$	( 23	)		$	( 84	)		$	45			$	( 16	)		$	61

		Nine Months Ended September 30,
		2018												2017
(Dollars in millions)		Before Tax				Provision (Benefit)				After Tax				Before Tax				Provision (Benefit)				After Tax
Other comprehensive income (loss):
Net unrealized gains (losses) on securities available for sale		$	( 888	)		$	( 215	)		$	( 673	)		$	299			$	104			$	195
Net changes in securities held to maturity		579				138				441				113				41				72
Net unrealized losses on cash flow hedges		( 674		)		( 162		)		( 512		)		( 61		)		( 23		)		( 38		)
Foreign currency translation adjustments (1)		25				29				( 4		)		12				( 74		)		86
Other		( 3		)		( 1		)		( 2		)		19				7				12
Other comprehensive income (loss)		$	( 961	)		$	( 211	)		$	( 750	)		$	382			$	55			$	327

__________

(1)	Includes the impact from hedging instruments designated as net investment hedges.

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The following table sets forth the computation of basic and diluted earnings per common share.

Table 11.1 : Computation of Basic and Diluted Earnings per Common Share

		Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars and shares in millions, except per share data)		2018				2017				2018				2017
Income from continuing operations, net of tax		$	1,501			$	1,137			$	4,761			$	2,979
Income (loss) from discontinued operations, net of tax		1				( 30		)		( 7		)		( 26		)
Net income		1,502				1,107				4,754				2,953
Dividends and undistributed earnings allocated to participating securities		( 9		)		( 8		)		( 32		)		( 21		)
Preferred stock dividends		( 53		)		( 52		)		( 185		)		( 185		)
Net income available to common stockholders		$	1,440			$	1,047			$	4,537			$	2,747
Total weighted-average basic shares outstanding		477.8				484.9				483.2				483.7
Effect of dilutive securities:
Stock options		1.5				2.2				1.8				2.5
Other contingently issuable shares		1.1				1.2				1.1				1.2
Warrants (1)		0.5				0.7				0.6				0.7
Total effect of dilutive securities		3.1				4.1				3.5				4.4
Total weighted-average diluted shares outstanding		480.9				489.0				486.7				488.1
Basic earnings per common share:
Net income from continuing operations		$	3.01			$	2.22			$	9.40			$	5.73
Loss from discontinued operations		0.00				( 0.06		)		( 0.01		)		( 0.05		)
Net income per basic common share		$	3.01			$	2.16			$	9.39			$	5.68
Diluted earnings per common share: (2)
Net income from continuing operations		$	2.99			$	2.20			$	9.33			$	5.68
Loss from discontinued operations		0.00				( 0.06		)		( 0.01		)		( 0.05		)
Net income per diluted common share		$	2.99			$	2.14			$	9.32			$	5.63

__________

(1)	Represents warrants issued as part of the U.S. Department of Treasury’s Troubled Assets Relief Program. There were 836 thousand and 1.4 million warrants to purchase common stock outstanding as of September 30, 2018 and 2017 , respectively.

(2)

There were no anti-dilutive shares excluded from the computation of dilutes earnings per share for the three months ended September 30, 2018 . Excluded from the computation of diluted earnings per share were 44 thousand shares related to awards for the nine months ended September 30, 2018 because their inclusion would be anti-dilutive. Also excluded from the computation of diluted earnings per share were 304 thousand shares related to options with exercise prices ranging from $ 82.08 to $ 86.34 , and 279 thousand shares related to options with exercise prices ranging from $ 82.08 to $ 86.34 for the three and nine months ended September 30, 2017 , respectively.

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Fair value, also referred to as an exit price, is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date . The fair value accounting guidance provides a three-level fair value hierarchy for classifying financial instruments. This hierarchy is based on the markets in which the assets or liabilities trade and whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. The fair value measurement of a financial asset or liability is assigned a level based on the lowest level of any input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are described below:

Level 1:		Valuation is based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2:		Valuation is based on observable market-based inputs other than Level 1 prices, such as quoted price for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3:		Valuation is generated from techniques that use significant assumptions not observable in the market. Valuation techniques include pricing models, discounted cash flow methodologies or similar techniques.

The accounting guidance for fair value measurements requires that we maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. The accounting guidance provides for the irrevocable option to elect, on a contract-by-contract basis, to measure certain financial assets and liabilities at fair value at inception of the contract and record any subsequent changes in fair value in earnings. We have not made any material fair value option elections as of or for the periods disclosed herein.

The determination and classification of financial instruments in the fair value hierarchy is performed at the end of each reporting period. We consider all available information, including observable market data, indications of market liquidity and orderliness, and our understanding of the valuation techniques and significant inputs. For additional information on the valuation techniques used in estimating the fair value of our financial assets and liabilities on a recurring or nonrecurring basis and for estimating the fair value for financial instruments that are not recorded at fair value, see “Note 17—Fair Value Measurement” in our 2017 Form 10-K.

Fair Value Governance and Control

We have a governance framework and a number of key controls that are intended to ensure that our fair value measurements are appropriate and reliable. Our governance framework provides for independent oversight and segregation of duties. Our control processes include review and approval of new transaction types, price verification and review of valuation judgments, methods, models, process controls and results.

Groups independent of our trading and investing functions participate in the review and validation process. Tasks performed by these groups include periodic verification of fair value measurements to determine if assigned fair values are reasonable, including comparing prices from vendor pricing services to other available market information.

Our Fair Value Committee (“FVC”), which includes representation from business areas, Risk Management and Finance divisions, provides guidance and oversight to ensure an appropriate valuation control environment. The FVC regularly reviews and approves our fair valuations to ensure that our valuation practices are consistent with industry standards and adhere to regulatory and accounting guidance.

We have a model policy, established by an independent Model Risk Office, which governs the validation of models and related supporting documentation to ensure the appropriate use of models for pricing and fair value measurements. The Model Risk Office validates all models and provides ongoing monitoring of their performance.

The fair value governance process is set up in a manner that allows the Chairperson of the FVC to escalate valuation disputes that cannot be resolved by the FVC to a more senior committee called the Valuations Advisory Committee (“VAC”) for resolution. The VAC is chaired by the Chief Financial Officer and includes other members of senior management. The VAC is only required to convene to review escalated valuation disputes.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table displays our assets and liabilities measured on our consolidated balance sheets at fair value on a recurring basis as of September 30, 2018 and December 31, 2017 . During the nine months ended September 30, 2018 , we had minimal movements between Levels 1 and 2.

Table 12.1 : Assets and Liabilities Measured at Fair Value on a Recurring Basis

		September 30, 2018
		Fair Value Measurements Using												Netting Adjustments (1)
(Dollars in millions)		Level 1				Level 2				Level 3								Total
Assets:
Securities available for sale:
U.S. Treasury securities		$	6,008			$	0			$	0			—				$	6,008
RMBS		0				34,346				519				—				34,865
CMBS		0				4,912				11				—				4,923
Other ABS		0				275				0				—				275
Other securities		190				1,123				0				—				1,313
Total securities available for sale		6,198				40,656				530				—				47,384
Other assets:
Derivative assets (2)		0				1,387				54				$	( 436	)		1,005
Other (3)		293				0				162				—				455
Total assets		$	6,491			$	42,043			$	746			$	( 436	)		$	48,844
Liabilities:
Other liabilities:
Derivative liabilities (2)		$	0			$	1,628			$	41			$	( 990	)		$	679
Total liabilities		$	0			$	1,628			$	41			$	( 990	)		$	679

		December 31, 2017
		Fair Value Measurements Using												Netting Adjustments (1)
(Dollars in millions)		Level 1				Level 2				Level 3								Total
Assets:
Securities available for sale:
U.S. Treasury securities		$	5,171			$	0			$	0			—				$	5,171
RMBS		0				27,178				614				—				27,792
CMBS		0				3,161				14				—				3,175
Other ABS		0				512				0				—				512
Other securities		320				680				5				—				1,005
Total securities available for sale		5,491				31,531				633				—				37,655
Other assets:
Derivative assets (2)		1				1,002				37				$	( 275	)		765
Other (3)		281				0				264				—				545
Total assets		$	5,773			$	32,533			$	934			$	( 275	)		$	38,965
Liabilities:
Other liabilities:
Derivative liabilities (2)		$	1			$	1,243			$	24			$	( 662	)		$	606
Total liabilities		$	1			$	1,243			$	24			$	( 662	)		$	606

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__________

(1)	Represents balance sheet netting of derivative assets and liabilities, and related payable and receivables for cash collateral held or placed with the same counterparty. See “ Note 9—Derivative Instruments and Hedging Activities ” for additional information.

(2)

Does not reflect $ 4 million and $ 2 million recognized as a net valuation allowance on derivative assets and liabilities for non-performance risk as of September 30, 2018 and December 31, 2017 , respectively. Non-performance risk is included in the derivative assets and liabilities which are part of other assets and liabilities on the consolidated balance sheets and offset through non-interest income in the consolidated statements of income.

(3)	As of September 30, 2018 , other includes retained interests in securitizations of $ 162 million , deferred compensation plan assets of $ 292 million and equity securities of $ 1 million . As of December 31, 2017 , other includes consumer MSRs of $ 92 million , retained interests in securitizations of $ 172 million and deferred compensation plan assets of $ 281 million .

Level 3 Recurring Fair Val ue Rollforward

The table below presents a reconciliation for all assets and liabilities measured and recognized at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2018 and 2017 . When assets and liabilities are transferred between levels, we recognize the transfer as of the end of the period. Generally, transfers into Level 3 were primarily driven by the usage of unobservable assumptions in the pricing of these financial instruments as evidenced by wider pricing variations among pricing vendors and transfers out of Level 3 were primarily driven by the usage of assumptions corroborated by market observable information as evidenced by tighter pricing among multiple pricing sources.

Table 12.2 : Level 3 Recurring Fair Value Rollforward

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Three Months Ended September 30, 2018
						Total Gains (Losses) (Realized/Unrealized)																																				Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2018 (1)
(Dollars in millions)		Balance, July 1, 2018				Included in Net Income (1)				Included in OCI				Purchases				Sales				Issuances				Settlements				Transfers Into Level 3				Transfers Out of Level 3				Balance, September 30, 2018
Securities available for sale:
RMBS		$	442			$	7			$	2			$	0			$	0			$	0			$	( 16	)		$	130			$	( 46	)		$	519			$	8
CMBS		11				0				0				0				0				0				0				0				0				11				0
Other securities		5				0				0				0				0				0				( 5		)		0				0				0				0
Total securities available for sale		458				7				2				0				0				0				( 21		)		130				( 46		)		530				8
Other assets:
Retained interests in securitizations		164				( 2		)		0				0				0				0				0				0				0				162				( 2		)
Net derivative assets (liabilities) (2)		( 5		)		( 2		)		0				0				0				18				2				0				0				13				( 2		)

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		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Nine Months Ended September 30, 2018
						Total Gains (Losses) (Realized/Unrealized)																																				Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2018 (1)
(Dollars in millions)		Balance, January 1, 2018				Included in Net Income (1)				Included in OCI				Purchases				Sales				Issuances				Settlements				Transfers Into Level 3				Transfers Out of Level 3				Balance, September 30, 2018
Securities available for sale:
RMBS		$	614			$	25			$	9			$	0			$	0			$	0			$	( 58	)		$	195			$	( 266	)		$	519			$	25
CMBS		14				0				0				0				0				0				( 3		)		0				0				11				0
Other securities		5				0				0				0				0				0				( 5		)		0				0				0				0
Total securities available for sale		633				25				9				0				0				0				( 66		)		195				( 266		)		530				25
Other assets:
Consumer MSRs		92				3				0				0				( 97		)		2				0				0				0				0				0
Retained interests in securitizations		172				( 10		)		0				0				0				0				0				0				0				162				( 10		)
Net derivative assets (liabilities) (2)		13				( 26		)		0				0				0				25				0				0				1				13				( 26		)

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Three Months Ended September 30, 2017
						Total Gains (Losses) (Realized/Unrealized)																																				Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2017 (1)
(Dollars in millions)		Balance, July 1, 2017				Included in Net Income (1)				Included in OCI				Purchases				Sales				Issuances				Settlements				Transfers Into Level 3				Transfers Out of Level 3				Balance, September 30, 2017
Securities available for sale:
RMBS		$	429			$	65			$	( 37	)		$	0			$	( 111	)		$	0			$	( 23	)		$	222			$	( 25	)		$	520			$	5
CMBS		17				0				0				50				0				0				( 1		)		0				0				66				0
Other securities		9				0				0				0				0				0				0				0				0				9				0
Total securities available for sale		455				65				( 37		)		50				( 111		)		0				( 24		)		222				( 25		)		595				5
Other assets:
Consumer MSRs		85				1				0				0				0				6				( 2		)		0				0				90				1
Retained interests in securitizations		188				( 10		)		0				0				0				0				0				0				0				178				( 10		)
Net derivative assets (liabilities) (2)		25				( 2		)		0				0				0				18				( 13		)		0				( 1		)		27				( 2		)

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		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Nine Months Ended September 30, 2017
						Total Gains (Losses) (Realized/Unrealized)																																				Net Unrealized Gains (Losses) Included in Net Income Related to Assets and Liabilities Still Held as of September 30, 2017 (1)
(Dollars in millions)		Balance, January 1, 2017				Included in Net Income (1)				Included in OCI				Purchases				Sales				Issuances				Settlements				Transfers Into Level 3				Transfers Out of Level 3				Balance, September 30, 2017
Securities available for sale:
RMBS		$	518			$	82			$	( 19	)		$	0			$	( 116	)		$	0			$	( 69	)		$	434			$	( 310	)		$	520			$	17
CMBS		51				0				0				110				0				0				( 3		)		0				( 92		)		66				0
Other securities		9				0				0				0				0				0				0				0				0				9				0
Total securities available for sale		578				82				( 19		)		110				( 116		)		0				( 72		)		434				( 402		)		595				17
Other assets:
Consumer MSRs		80				( 3		)		0				0				0				18				( 5		)		0				0				90				( 3		)
Retained interests in securitizations		201				( 23		)		0				0				0				0				0				0				0				178				( 23		)
Net derivative assets (liabilities) (2)		18				( 1		)		0				0				0				45				( 28		)		0				( 7		)		27				( 1		)

__________

(1)	Gains (losses) on securities available for sale, retained interests in securitizations and consumer MSRs are reported as a component of non-interest income in our consolidated statements of income. Gains (losses) on derivatives are included as a component of net interest income or non-interest income in our consolidated statements of income.

(2)	Includes derivative assets and liabilities of $ 54 million and $ 41 million , respectively, as of September 30, 2018 , and $ 57 million and $ 30 million , respectively, as of September 30, 2017 .

Significant Level 3 Fair Value Asset and Liability Input Sensitivity

Changes in unobservable inputs may have a significant impact on fair value. Certain of these unobservable inputs will, in isolation, have a directionally consistent impact on the fair value of the instrument for a given change in that input. Alternatively, the fair value of the instrument may move in an opposite direction for a given change in another input. In general, an increase in the discount rate, default rates, loss severity and credit spreads, in isolation, would result in a decrease in the fair value measurement. In addition, an increase in default rates would generally be accompanied by a decrease in recovery rates, slower prepayment rates and an increase in liquidity spreads.

Techniques and Inputs for Level 3 Fair Value Measurements

The following table presents the significant unobservable inputs used to determine the fair values of our Level 3 financial instruments on a recurring basis. We utilize multiple vendor pricing services to obtain fair value for our securities. Several of our vendor pricing services are only able to provide unobservable input information for a limited number of securities due to software licensing restrictions. Other vendor pricing services are able to provide unobservable input information for all securities for which they provide a valuation. As a result, the unobservable input information for the securities available for sale presented below represents a composite summary of all information we are able to obtain. The unobservable input information for all other Level 3 financial instruments is based on the assumptions used in our internal valuation models.

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Table 12.3 : Quantitative Information about Level 3 Fair Value Measurements

Quantitative Information about Level 3 Fair Value Measurements

(Dollars in millions)

Fair Value at September 30, 2018

Significant Valuation Techniques

Significant Unobservable Inputs

Range

Weighted Average

Securities available for sale:

RMBS

$

519

Discounted cash flows (vendor pricing)

Yield Voluntary prepayment rate Default rate Loss severity

2-10% 0-17% 0-7% 0-90%

5% 4% 3% 65%

CMBS

11

Discounted cash flows (vendor pricing)

Yield

4%

4%

Other assets:

Retained interests in securitization (1)

162

Discounted cash flows

Life of receivables (months) Voluntary prepayment rate Discount rate Default rate Loss severity

1-56 2-13% 3-5% 2-5% 55-111%

N/A

Net derivative assets (liabilities)

13

Discounted cash flows

Swap rates

3%

3%

Quantitative Information about Level 3 Fair Value Measurements

(Dollars in millions)

Fair Value at December 31, 2017

Significant Valuation Techniques

Significant Unobservable Inputs

Range

Weighted Average

Securities available for sale:

RMBS

$

614

Discounted cash flows (vendor pricing)

Yield Voluntary prepayment rate Default rate Loss severity

2-9% 0-15% 0-8% 0-90%

5% 4% 3% 62%

CMBS

14

Discounted cash flows (vendor pricing)

Yield Voluntary prepayment rate

3% 0%

3% 0%

Other securities

5

Discounted cash flows

Yield

2%

2%

Other assets:

Consumer MSRs

92

Discounted cash flows

Total prepayment rate Discount rate Option-adjusted spread rate Servicing cost ($ per loan)

7-30% 14% 200-1,500 bps $75-$100

16% 14% 458 bps $76

Retained interests in securitization (1)

172

Discounted cash flows

Life of receivables (months) Voluntary prepayment rate Discount rate Default rate Loss severity

6-79 2-12% 3-10% 1-6% 3-115%

N/A

Net derivative assets (liabilities)

13

Discounted cash flows

Swap rates

2%

2%

__________

(1)	Due to the nature of the various mortgage securitization structures in which we have retained interests, it is not meaningful to present a consolidated weighted average for the significant unobservable inputs.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We are required to measure and recognize certain assets at fair value on a nonrecurring basis on the consolidated balance sheets. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, from the application of lower of cost or fair value accounting or when we evaluate for impairment).

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The following table presents the carrying value of the assets measured at fair value on a nonrecurring basis and still held as of September 30, 2018 and December 31, 2017 , and for which a nonrecurring fair value measurement was recorded during the nine and twelve months then ended.

Table 12.4 : Nonrecurring Fair Value Measurements

		September 30, 2018
		Estimated Fair Value Hierarchy								Total
(Dollars in millions)		Level 2				Level 3
Loans held for investment		$	0			$	131			$	131
Loans held for sale		254				0				254
Other assets (1)		0				92				92
Total		$	254			$	223			$	477

		December 31, 2017
		Estimated Fair Value Hierarchy								Total
(Dollars in millions)		Level 2				Level 3
Loans held for investment		$	0			$	182			$	182
Loans held for sale		177				1				178
Other assets (1)		0				35				35
Total		$	177			$	218			$	395

__________

(1)

As of September 30, 2018 , other assets included equity investments accounted for under measurement alternative of $ 17 million , foreclosed property and repossessed assets of $ 61 million and long-lived assets held for sale of $ 14 million . As of December 31, 2017, other assets included foreclosed property and repossessed assets of $ 17 million and long-lived assets held for sale of $ 18 million .

In the above table, loans held for investment are generally valued based in part on the estimated fair value of the underlying collateral and the non-recoverable rate, which is considered to be a significant unobservable input. The non-recoverable rate ranged from 0 % to 51 % , with a weighted average of 27 % , and from 0 % to 77 % , with a weighted average of 21 % , as of September 30, 2018 and December 31, 2017 , respectively. The significant unobservable inputs and related quantitative information related to fair value of the other assets are not meaningful to disclose as they vary significantly across properties and collateral.

The following table presents total nonrecurring fair value measurements for the period, included in earnings, attributable to the change in fair value relating to assets that are still held at September 30, 2018 and 2017 .

Table 12.5 : Nonrecurring Fair Value Measurements Included in Earnings

		Total Gains (Losses)
		Nine Months Ended September 30,
(Dollars in millions)		2018				2017
Loans held for investment		$	( 99	)		$	( 237	)
Loans held for sale		( 5		)		( 5		)
Other assets (1)		( 57		)		( 7		)
Total		$	( 161	)		$	( 249	)

__________

(1)	Other assets include fair value adjustments related to equity investments accounted for under the measurement alternative, foreclosed property, repossessed assets and long-lived assets held for sale.

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Fair Value of Financial Instruments

The following table presents the carrying value and estimated fair value, including the level within the fair value hierarchy, of our financial instruments that are not measured at fair value on a recurring basis on our consolidated balance sheets as of September 30, 2018 and December 31, 2017 .

Table 12.6 : Fair Value of Financial Instruments

		September 30, 2018
		Carrying Value				Estimated Fair Value				Estimated Fair Value Hierarchy
(Dollars in millions)										Level 1				Level 2				Level 3
Financial assets:
Cash and cash equivalents		$	10,882			$	10,882			$	4,547			$	6,335			$	0
Restricted cash for securitization investors		746				746				746				0				0
Securities held to maturity		34,631				33,901				0				33,833				68
Net loans held for investment		231,542				234,635				0				0				234,635
Loans held for sale		1,402				1,421				0				1,421				0
Interest receivable		1,518				1,518				0				1,518				0
Other investments (1)		1,415				1,415				0				1,415				0
Financial liabilities:
Deposits with defined maturities		34,618				34,552				0				34,552				0
Securitized debt obligations		18,649				18,735				0				18,735				0
Senior and subordinated notes		31,291				31,787				0				31,787				0
Federal funds purchased and securities loaned or sold under agreements to repurchase		384				384				0				384				0
Other borrowings (2)		1,826				1,826				0				1,826				0
Interest payable		391				391				0				391				0

		December 31, 2017
		Carrying Value				Estimated Fair Value				Estimated Fair Value Hierarchy
(Dollars in millions)										Level 1				Level 2				Level 3
Financial assets:
Cash and cash equivalents		$	14,040			$	14,040			$	4,458			$	9,582			$	0
Restricted cash for securitization investors		312				312				312				0				0
Securities held to maturity		28,984				29,437				200				29,217				20
Net loans held for investment		246,971				251,468				0				0				251,468
Loans held for sale		971				952				0				949				3
Interest receivable		1,536				1,536				0				1,536				0
Other investments (1)		1,689				1,689				0				1,680				9
Financial liabilities:
Deposits		243,702				243,732				26,404				217,328				0
Securitized debt obligations		20,010				20,122				0				20,122				0
Senior and subordinated notes		30,755				31,392				0				31,392				0
Federal funds purchased and securities loaned or sold under agreements to repurchase		576				576				0				576				0
Other borrowings (2)		8,892				8,892				0				8,892				0
Interest payable		413				413				0				413				0

__________

(1)	Other investments as of September 30, 2018 include FHLB and Federal Reserve stock. Other investments as of December 31, 2017 include FHLB and Federal Reserve stock, as well as cost method investments. These investments are included in other assets on our consolidated balance sheets.

(2)	Other borrowings excludes capital lease obligations.

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Our principal operations are organized into three major business segments, which are defined primarily based on the products and services provided or the type of customer served: Credit Card, Consumer Banking and Commercial Banking. The operations of acquired businesses have been integrated into our existing business segments. Certain activities that are not part of a segment, such as management of our corporate investment portfolio, asset/liability management by our centralized Corporate Treasury group and residual tax expense or benefit to arrive at the consolidated effective tax rate that is not assessed to our primary business segments, are included in the Other category.

Basis of Presentation

We report the results of each of our business segments on a continuing operations basis. See “

Note 2—Business Developments and Discontinued Operations ” for a discussion of our discontinued operations. The results of our individual businesses reflect the manner in which management evaluates performance and makes decisions about funding our operations and allocating resources.

Business Segment Reporting Methodology

The results of our business segments are intended to present each segment as if it were a stand-alone business. Our internal management and reporting process used to derive our segment results employs various allocation methodologies, including funds transfer pricing, to assign certain balance sheet assets, deposits and other liabilities and their related revenue and expenses directly or indirectly attributable to each business segment. Our funds transfer pricing process provides a funds credit for sources of funds, such as deposits generated by our Consumer Banking and Commercial Banking businesses, and a funds charge for the use of funds by each segment. Due to the integrated nature of our business segments, estimates and judgments have been made in allocating certain revenue and expense items. Transactions between segments are based on specific criteria or approximate third-party rates. We regularly assess the assumptions, methodologies and reporting classifications used for segment reporting, which may result in the implementation of refinements or changes in future periods. We provide additional information on the allocation methodologies used to derive our business segment results in “Note 18—Business Segments” in our 2017 Form 10-K.

Segment Results and Reconciliation

We may periodically change our business segments or reclassify business segment results based on modifications to our management reporting methodologies or changes in organizational alignment. In the first quarter of 2018, we made a change in how revenue is measured in our Commercial Banking business to include the tax benefits of losses on certain tax-advantaged investments. These tax benefits are included in revenue on a taxable-equivalent basis within our Commercial Banking business, with an offsetting reduction in the Other category. This change in measurement of our Commercial Banking revenue did not have any impact to the consolidated financial statements.

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The following tables present our business segment results for the three and nine months ended September 30, 2018 and 2017 , selected balance sheet data as of September 30, 2018 and 2017 , and a reconciliation of our total business segment results to our reported consolidated net income from continuing operations, loans held for investment and deposits.

Table 13.1 : Segment Results and Reconciliation

		Three Months Ended September 30, 2018
(Dollars in millions)		Credit Card				Consumer Banking				Commercial Banking (1)(2)				Other (1)(2)(3)				Consolidated Total
Net interest income		$	3,596			$	1,636			$	539			$	15			$	5,786
Non-interest income		893				155				189				( 61		)		1,176
Total net revenue (loss)		4,489				1,791				728				( 46		)		6,962
Provision (benefit) for credit losses		1,031				184				54				( 1		)		1,268
Non-interest expense		2,103				979				408				283				3,773
Income (loss) from continuing operations before income taxes		1,355				628				266				( 328		)		1,921
Income tax provision (benefit)		315				146				62				( 103		)		420
Income (loss) from continuing operations, net of tax		$	1,040			$	482			$	204			$	( 225	)		$	1,501
Loans held for investment		$	110,685			$	59,329			$	68,747			$	0			$	238,761
Deposits		0				196,635				30,474				20,086				247,195

		Nine Months Ended September 30, 2018
(Dollars in millions)		Credit Card				Consumer Banking				Commercial Banking (1)(2)				Other (1)(2)(3)				Consolidated Total
Net interest income		$	10,550			$	4,860			$	1,624			$	21			$	17,055
Non-interest income		2,634				504				585				285				4,008
Total net revenue		13,184				5,364				2,209				306				21,063
Provision (benefit) for credit losses		3,658				535				74				( 49		)		4,218
Non-interest expense		6,046				2,942				1,220				562				10,770
Income (loss) from continuing operations before income taxes		3,480				1,887				915				( 207		)		6,075
Income tax provision (benefit)		810				440				213				( 149		)		1,314
Income (loss) from continuing operations, net of tax		$	2,670			$	1,447			$	702			$	( 58	)		$	4,761
Loans held for investment		$	110,685			$	59,329			$	68,747			$	0			$	238,761
Deposits		0				196,635				30,474				20,086				247,195

		Three Months Ended September 30, 2017
(Dollars in millions)		Credit Card				Consumer Banking				Commercial Banking (1)				Other (1)				Consolidated Total
Net interest income		$	3,440			$	1,649			$	560			$	51			$	5,700
Non-interest income		865				192				179				49				1,285
Total net revenue		4,305				1,841				739				100				6,985
Provision for credit losses		1,466				293				63				11				1,833
Non-interest expense		1,961				1,051				394				161				3,567
Income (loss) from continuing operations before income taxes		878				497				282				( 72		)		1,585
Income tax provision (benefit)		306				181				103				( 142		)		448
Income from continuing operations, net of tax		$	572			$	316			$	179			$	70			$	1,137
Loans held for investment		$	109,130			$	75,564			$	67,670			$	58			$	252,422
Deposits		0				184,719				32,783				21,560				239,062

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		Nine Months Ended September 30, 2017
(Dollars in millions)		Credit Card				Consumer Banking				Commercial Banking (1)				Other (1)				Consolidated Total
Net interest income		$	10,080			$	4,744			$	1,695			$	128			$	16,647
Non-interest income		2,478				570				520				9				3,577
Total net revenue		12,558				5,314				2,215				137				20,224
Provision for credit losses		4,580				840				201				4				5,625
Non-interest expense		5,808				3,152				1,166				289				10,415
Income (loss) from continuing operations before income taxes		2,170				1,322				848				( 156		)		4,184
Income tax provision (benefit)		774				482				310				( 361		)		1,205
Income from continuing operations, net of tax		$	1,396			$	840			$	538			$	205			$	2,979
Loans held for investment		$	109,130			$	75,564			$	67,670			$	58			$	252,422
Deposits		0				184,719				32,783				21,560				239,062

__________

(1)	Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate (21% and 35% for all periods presented in 2018 and 2017, respectively) and state taxes where applicable, with offsetting reductions to the Other category.

(2)

In the first quarter of 2018, we made a change in how revenue is measured in our Commercial Banking business to include the tax benefits of losses on certain tax-advantaged investments. These tax benefits are included in revenue on a taxable-equivalent basis within our Commercial Banking business, with an offsetting reduction to the Other category. In addition, all revenue presented on a taxable-equivalent basis in our Commercial Banking business was impacted by the reduction of the federal tax rate set forth in the Tax Act. The net impact of the measurement change and the reduction of the federal tax rate was a decrease of $ 30 million and $ 86 million in revenue in our Commercial Banking business in the third quarter and first nine months of 2018, respectively, with an offsetting impact to the Other category.

(3)

In the second quarter of 2018, we sold the substantial majority of our consumer home loan portfolio and the related servicing. We also transferred the remaining portfolio to loans held for sale as of June 30, 2018. These actions resulted in a net gain of $ 400 million in the second quarter of 2018, including a benefit for credit losses of $ 46 million , which is reflected in the Other category. In the third quarter of 2018, we sold substantially all of the remaining consumer home loan portfolio and recognized a gain of $ 99 million in the Other category.

Revenue from Contracts with Customers

In the first quarter of 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) under the modified retrospective transition method. The majority of our revenue from contracts with customers consists of interchange fees in our Credit Card business and service charges on deposits and other customer-related fees in our Consumer Banking and Commercial Banking businesses. Revenue from contracts with customers is included in non-interest income in our consolidated statements of income.

The following table presents revenue from contracts with customers and a reconciliation to non-interest income by business segment for the three and nine months ended September 30, 2018 .

Table 13.2: Revenue from Contracts with Customers and Reconciliation to Segments Results

		Three Months Ended September 30, 2018
(Dollars in millions)		Credit Card				Consumer Banking				Commercial Banking (1)				Other (1)				Consolidated Total
Contract revenue:
Interchange fees, net (2)		$	661			$	46			$	8			$	( 1	)		$	714
Service charges and other customer-related fees		( 6		)		117				33				0				144
Total contract revenue		655				163				41				( 1		)		858
Revenue from other sources		238				( 8		)		148				( 60		)		318
Total non-interest income		$	893			$	155			$	189			$	( 61	)		$	1,176

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		Nine Months Ended September 30, 2018
(Dollars in millions)		Credit Card				Consumer Banking				Commercial Banking (1)				Other (1)				Consolidated Total
Contract revenue:
Interchange fees, net (2)		$	1,924			$	135			$	23			$	( 2	)		$	2,080
Service charges and other customer-related fees		( 2		)		367				100				( 1		)		464
Total contract revenue		1,922				502				123				( 3		)		2,544
Revenue from other sources		712				2				462				288				1,464
Total non-interest income		$	2,634			$	504			$	585			$	285			$	4,008

__________

(1)	Some of our commercial investments generate tax-exempt income, tax credits or other tax benefits. Accordingly, we present our Commercial Banking revenue and yields on a taxable-equivalent basis, calculated using the federal statutory tax rate of 21% and state taxes where applicable, with offsetting reclassifications to the Other category.

(2)	Interchange fees are presented net of customer reward expenses.

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Commitments to Lend

Our unfunded lending commitments primarily consist of credit card lines, loan commitments to customers of both our Commercial Banking and Consumer Banking businesses, as well as standby and commercial letters of credit. These commitments, other than credit card lines, are legally binding conditional agreements that have fixed expirations or termination dates and specified interest rates and purposes. The contractual amount of these commitments represents the maximum possible credit risk to us should the counterparty draw upon the commitment. We generally manage the potential risk of unfunded lending commitments by limiting the total amount of arrangements, monitoring the size and maturity structure of these portfolios and applying the same credit standards for all of our credit activities.

For unused credit card lines, we have not experienced and do not anticipate that all of our customers will access their entire available line at any given point in time. Commitments to extend credit other than credit card lines generally require customers to maintain certain credit standards. Collateral requirements and loan-to-value (“LTV”) ratios are the same as those for funded transactions and are established based on management’s credit assessment of the customer. These commitments may expire without being drawn upon; therefore, the total commitment amount does not necessarily represent future funding requirements.

We also issue letters of credit, such as financial standby, performance standby and commercial letters of credit, to meet the financing needs of our customers. Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party in a borrowing arrangement. Commercial letters of credit are short-term commitments issued primarily to facilitate trade finance activities for customers and are generally collateralized by the goods being shipped to the client. These collateral requirements are similar to those for funded transactions and are established based on management’s credit assessment of the customer. Management conducts regular reviews of all outstanding letters of credit and the results of these reviews are considered in assessing the adequacy of reserves for unfunded lending commitments.

The following table presents contractual amount and carrying value of our unfunded lending commitments as of September 30, 2018 and December 31, 2017 . The carrying value represents our reserve and deferred revenue on legally binding commitments.

Table 14.1 : Unfunded Lending Commitments: Contractual Amount and Carrying Value

		Contractual Amount								Carrying Value
(Dollars in millions)		September 30, 2018				December 31, 2017				September 30, 2018				December 31, 2017
Credit card lines		$	343,321			$	351,481			N/A				N/A
Other loan commitments (1)		33,292				31,840				$	86			$	84
Standby letters of credit and commercial letters of credit (2)		1,820				2,046				26				43
Total unfunded lending commitments		$	378,433			$	385,367			$	112			$	127

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(1)	Includes $ 1.3 billion and $ 1.0 billion of advised lines of credit as of September 30, 2018 and December 31, 2017 , respectively.

(2)	These financial guarantees have expiration dates ranging from 2019 to 2025 as of September 30, 2018 .

Loss Sharing Agreements and Other Obligations

Within our Commercial Banking business, we originate multifamily commercial real estate loans with the intent to sell them to the GSEs. We enter into loss sharing agreements with the GSEs upon the sale of the loans. At inception, we record a liability representing the fair value of our obligation which is subsequently amortized as we are released from risk of payment under the loss sharing agreement. If payment under the loss sharing agreement becomes probable and estimable, an additional liability may be recorded on the consolidated balance sheets and a non-interest expense may be recognized in the consolidated statements of income. The liability recognized on our consolidated balance sheets for our loss sharing agreements was $ 55 million and $ 60 million as of September 30, 2018 and December 31, 2017 , respectively.

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In the fourth quarter of 2017, we entered into an agreement with our third-party servicer under which we assumed the obligation to exercise the remaining clean-up calls as they become due on certain securitization transactions related to our discontinued manufactured housing operations of GreenPoint Credit, LLC, a subsidiary of GreenPoint. We also entered into a forward sale agreement pursuant to which we will sell the underlying loans to a third-party purchaser as the clean-up calls are exercised. Accordingly, we recognized loans held for sale and a corresponding liability on our consolidated balance sheets. Based on the current information and estimates, we expect that we will incur losses associated with this exposure and have recorded a liability of $ 22 million and $ 78 million as of September 30, 2018 and December 31, 2017 , respectively. See “

Note 6—Variable Interest Entities and Securitizations ” for information related to these transactions.

U.K. Payment Protection Insurance

In the U.K., we previously sold payment protection insurance (“PPI”). In response to an elevated level of customer complaints across the industry, heightened media coverage and pressure from consumer advocacy groups, the U.K. Financial Conduct Authority (“FCA”), formerly the Financial Services Authority, investigated and raised concerns about the way the industry has handled complaints related to the sale of these insurance policies. For the past several years, the U.K.’s Financial Ombudsman Service (“FOS”) has been adjudicating customer complaints relating to PPI, escalated to it by consumers who disagree with the rejection of their complaint by firms, leading to customer remediation payments by us and others within the industry. On March 2, 2017, the FCA issued a statement that sets out final rules and guidance on the PPI complaints deadline, which has been set as August 29, 2019. The statement also provides clarity on how to handle PPI complaints under s.140A of the Consumer Credit Act, including guidance on how redress for such complaints should be calculated. The final rules and guidance came into force on August 29, 2017.

In determining our best estimate of incurred losses for future remediation payments, management considers numerous factors, including (i) the number of customer complaints we expect in the future; (ii) our expectation of upholding those complaints; (iii) the expected number of complaints customers escalate to the FOS; (iv) our expectation of the FOS upholding such escalated complaints; (v) the number of complaints that fall under s.140A of the Consumer Credit Act; and (vi) the estimated remediation payout to customers. We monitor these factors each quarter and adjust our reserves to reflect the latest data.

Management’s best estimate of incurred losses related to U.K. PPI totaled $ 118 million and $ 249 million as of September 30, 2018 and December 31, 2017 , respectively. For the three months ended September 30, 2018 , no additions were made to our reserve. Other movements were due to a combination of utilization of the reserve through customer refund payments and foreign exchange movements. Our best estimate of reasonably possible future losses beyond our reserve as of September 30, 2018 is approximately $ 100 million .

Litigation

In accordance with the current accounting standards for loss contingencies, we establish reserves for litigation related matters that arise from the ordinary course of our business activities when it is probable that a loss associated with a claim or proceeding has been incurred and the amount of the loss can be reasonably estimated. None of the amounts we currently have recorded individually or in the aggregate are considered to be material to our financial condition. Litigation claims and proceedings of all types are subject to many uncertain factors that generally cannot be predicted with assurance. Below we provide a description of potentially material legal proceedings and claims.

For some of the matters disclosed below, we are able to estimate reasonably possible losses above existing reserves, and for other disclosed matters, such an estimate is not possible at this time. For those matters below where an estimate is possible, management currently estimates the reasonably possible future losses beyond our reserves as of September 30, 2018 is approximately $ 750 million , which includes estimates related to mortgage representation and warranty exposure. Our reserve and reasonably possible loss estimates involve considerable judgment and reflect that there is still significant uncertainty regarding numerous factors that may impact the ultimate loss levels. Notwithstanding our attempt to estimate a reasonably possible range of loss beyond our current accrual levels for some litigation matters based on current information, it is possible that actual future losses will exceed both the current accrual level and the range of reasonably possible losses disclosed here. Given the inherent uncertainties involved in these matters, especially those involving governmental agencies, and the very large or indeterminate damages sought in some of these matters, there is significant uncertainty as to the ultimate liability we may incur from these litigation matters and an adverse outcome in one or more of these matters could be material to our results of operations or cash flows for any particular reporting period.

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Interchange

In 2005, a putative class of retail merchants filed antitrust lawsuits against MasterCard and Visa and several issuing banks, including Capital One, seeking both injunctive relief and monetary damages for an alleged conspiracy by defendants to fix the level of interchange fees. Other merchants have asserted similar claims in separate lawsuits, and while these separate cases did not name any issuing banks, Visa, MasterCard and issuers, including Capital One, have entered settlement and judgment sharing agreements allocating the liabilities of any judgment or settlement arising from all interchange-related cases.

The lawsuits were consolidated before the U.S. District Court for the Eastern District of New York for certain purposes and were settled in 2012. The class settlement, however, was invalidated by the United States Court of Appeals for the Second Circuit in June 2016, and the suit was separated into separate class actions seeking injunctive and monetary relief, respectively. In addition, numerous merchant groups opted out of the 2012 settlement and have pursued their own claims. The claims by the injunctive relief class have not been resolved, but the parties reached a new settlement agreement with the monetary damages class in August 2018, whereby the class would receive up to approximately $ 6.2 billion collectively from the defendants in exchange for a release of their claims, depending on the percentage of class plaintiffs who opt out. Court proceedings are underway for approval of that settlement. Visa and MasterCard have also settled several of the opt-out cases, which required non-material payments from issuing banks, including Capital One. Visa created a litigation escrow account following its IPO of stock in 2008 that funds settlements for its member banks, and any settlements related to MasterCard-allocated losses have either already been paid or are reflected in Capital One’s reserves.

Mortgage Representation and Warranty

We face residual exposure related to subsidiaries that originated residential mortgage loans and sold these loans to various purchasers, including purchasers who created securitization trusts. In connection with their sales of mortgage loans, these subsidiaries entered into agreements containing varying representations and warranties about, among other things, the ownership of the loan, the validity of the lien securing the loan, the loan’s compliance with any applicable criteria established by the purchaser, including underwriting guidelines and the existence of mortgage insurance, and the loan’s compliance with applicable federal, state and local laws. Each of these subsidiaries may be required to repurchase mortgage loans or indemnify certain purchasers and others against losses they incur, in the event of certain breaches of these representations and warranties.

The substantial majority of our representation and warranty exposure has been resolved through litigation, and our remaining representation and warranty exposure is almost entirely litigation-related. Accordingly, we establish litigation reserves for representation and warranty losses that we consider to be both probable and reasonably estimable. The reserve process relies heavily on estimates, which are inherently uncertain, and requires the application of judgment. Our reserves and estimates of reasonably possible losses could be impacted by claims which may be brought by securitization trustees and sponsors, bond-insurers, investors, and GSEs, as well as claims brought by governmental agencies under the Financial Institutions Reform, Recovery and Enforcement Act (“FIRREA”), the False Claims Act or other federal or state statutes.

In May, June and July 2012, the Federal Housing Finance Agency (“FHFA”) (acting as conservator for Freddie Mac) filed three summonses with notice in the New York state court against GreenPoint, on behalf of the trustees for three RMBS trusts backed by loans originated by GreenPoint with an aggregate original principal balance of $ 3.4 billion . In January 2013, the plaintiffs filed an amended consolidated complaint in the name of the three trusts, acting by the respective trustees, alleging breaches of contractual representations and warranties regarding compliance with GreenPoint underwriting guidelines relating to certain loans (“FHFA Litigation”). Plaintiffs seek specific performance of the repurchase obligations with respect to the loans for which they have provided notice of alleged breaches as well as all other allegedly breaching loans, rescissory damages, indemnification, costs and interest. On March 29, 2017, the trial court granted GreenPoint’s motion for summary judgment and dismissed plaintiff’s claims as untimely. In May 2017, the plaintiff appealed the dismissal to the Second Circuit.

Anti-Money Laundering

Capital One is subject to an open consent order with the Office of the Comptroller of the Currency (“OCC”) dated July 10, 2015 concerning regulatory deficiencies in our anti-money laundering (“AML”) program. In October 2018, Capital One agreed to a civil monetary penalty of $ 100 million to resolve the monetary component of the AML consent order. This amount was fully accrued in the third quarter of 2018.

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Capital One continues to be investigated by the New York District Attorney’s Office (“NYDA”), the Department of Justice (“DOJ”) and the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of Treasury primarily with respect to certain former check casher clients of the Commercial Banking business and Capital One’s AML program. Capital One is cooperating with all agencies involved in the investigation. We are in discussions with FinCEN to explore a potential regulatory resolution of its investigation.

Other Pending and Threatened Litigation

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(1)	Comprises mainly repurchases of common stock under the 2018 Stock Repurchase Program. There were 4,764 and 16,831 shares withheld in July and August, respectively, to cover taxes on restricted stock awards whose restrictions have lapsed. For additional information including our 2018 Stock Repurchase Program, see “MD&A— Capital Management —Dividend Policy and Stock Purchases”.

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*	Indicates a document being filed with this Form 10-Q.

**	Information in this Form 10-Q furnished herewith shall not be deemed to be “filed” for the purposes of Section 18 of the 1934 Act or otherwise subject to the liabilities of that section.

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